Document:

SECURITIES
EXCHANGE AGREEMENT

 

dated
effective as of June 10, 2015

 

by
and among

 

ROYAL
ENERGY RESOURCES, INC.

 

and

 

G.S.
ENERGY, LLC

 

and

 

IAN
GANZER and GARY GANZER

 

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SECURITIES
EXCHANGE AGREEMENT

 

THIS
SECURITIES EXCHANGE AGREEMENT (the “Agreement”), dated effective as of June 10, 2015 (the “Effective
Date”), is entered into by and among G.S. Energy, LLC, a West Virginia limited liability company (“GS
Energy” or the “Company”) and Ian Ganzer and Gary Ganzer, the members of GS Energy (the
“Members”), at 304 Waitman Street, Morgantown, West Virginia 26501, and Royal Energy Resources, Inc.,
a Delaware corporation (“Royal”), at 56 Broad Street, Suite 2, Charleston, South Carolina 29401. Certain
capitalized terms used in this Agreement are defined in Section 8.3 hereof.

 

W
I T N E S S E T H:

 

WHEREAS,
as of the Effective Date, the Members were the sole owners of all outstanding membership interests in the Company (the “Member
Interests”);

 

WHEREAS,
the Company is the owner and lessee of that certain surface coal mine, located in the Bradshaw Area of the County of McDowell,
State of West Virginia, encompassing approximately 6,000 net acres, more specifically described herein (the “Mine”),
with licenses from and permits issued by the West Virginia Department of Environmental Protection (the “WVDEP”),
with an estimated 28.7 millions tons of recoverable coal;

 

WHEREAS,
Closing, as defined herein, shall be contingent on the execution of (i) a definitive agreement for the purchase of Blue Grove
Coal, LLC (“Blue Grove”), such that Royal shall be the owner and operator of the Mine (the “Blue
Grove Agreement”); and (ii) a management agreement with a Member, Ian Ganzer, or an entity selected by Member,
for the continual operations of the Mine in its ordinary course (the “Management Agreement”);

 

WHEREAS,
Royal proposes to acquire all of the Member Interests in exchange for (i) the issuance of shares of its common stock, $0.00001
par value, with an aggregate market value of $8,750,000 (the “Exchange”);

 

WHEREAS,
the Boards of Directors of Royal and the Members of the Company have determined that it is desirable to effect a plan of reorganization
pursuant to 26 U.S.C. §368(a)(1)(B).

 

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

 

ARTICLE
I

ISSUANCE AND EXCHANGE OF SECURITIES

 

1.1
Issuance and Exchange. At the Closing (as defined in Section 2.1 below), to be held in accordance with the provisions of
Article II below and subject to the terms and agreements set forth herein, Royal shall issue to the Members 1,750,000 shares of
Royal common stock, $0.00001 par value (the “Royal Stock”).

 

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ARTICLE
II

CLOSING

 

2.1
Closing. The consummation of the Exchange by Royal and the Members (the “Closing”) shall occur
at a time and place selected by Royal, subject to the satisfaction or waiver of all of the conditions to Closing, including the
completion of a financial audit (the “Audit”), or at such other place as the parties may agree upon
(the “Closing Date”).

 

2.2
Deliveries.

 

	 	(a)	Royal
    shall deliver, the certificate(s) for the shares of Royal Stock being exchanged, it being understood that the certificates
    will be prepared by Royal’s transfer agent and delivered as per the instructions of the Members;
	 	 	 
	 	(b)	Royal
    shall deliver an employment agreement for the Member, Ian Ganzer, for a period of two (2) years, upon terms and conditions
    agreed to among the parties, including but not limited to: (i) gross compensation in the amount of $250,000.00, of which $100,000
    shall be a cash signing bonus and the remainder shall be shares of common stock with a market value of $150,000 which shall
    be subject to a 24 month, pro rata vesting requirement; and (ii) the appointment to the position of Chief Operating Officer
    of Royal (the “Employment Agreement”), the form of which is attached hereto and incorporated herein
    by this reference as Exhibit A;
	 	 	 
	 	(c)	Royal
    shall deliver a Management Agreement for the Member, Ian Ganzer, or an entity controlled by Mr. Ganzer, to manage the Company
    for a period of two (2) years, upon terms and conditions agreed to among the parties, the form of which is attached hereto
    and incorporated herein by this reference as Exhibit B; 
	 	 	 
	 	 	GS
    Energy shall deliver an amendment to the operating agreement for the Company (the “OA Amendment”)
    (i) substituting Royal for the Members as the sole member thereof; and (ii) reconstituting the Board of Directors or Managers,
    however the case may be, to two (2) members, to which the Members and Royal shall each be granted a nominee, which OA Amendment
    shall be attached hereto and incorporated herein as Exhibit C;
	 	 	 
	 	(d)	GS
    Energy shall deliver a copy of the operator agreement, or its equivalent, with Blue Grove, providing for its exclusive control
    of operations at the Mine (the “Operator Agreement”), which Operator Agreement shall be attached
    hereto and incorporated herein as Exhibit D;
	 	 	 
	 	(e)	GS
    Energy shall deliver to Royal true and correct copies of all the books and records of the Company, including the Audit for
    the fiscal periods of 2013 and 2014, which audit shall be paid for by Royal.

 

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ARTICLE
III 

REPRESENTATIONS
AND WARRANTIES

OF
THE MEMBERS AND THE COMPANY

 

The
Company and the Members, jointly and severally, represents and warrant to Royal as follows (it being acknowledged that Royal is
entering into this Agreement in material reliance upon each of the following representations and warranties, and that the truth
and accuracy of each, as evidenced by their signature set forth on the signature page, constitutes a condition precedent to the
obligations of Royal hereunder):

 

3.1
Ownership of Member Interests. The Members are the lawful owners of the Member Interests to be transferred to Royal free
and clear of all preemptive or similar rights, Liens, and the delivery to Royal of the Member Interests pursuant to the provisions
of this Agreement will transfer to Royal valid title thereto, free and clear of all Liens.

 

3.2
Organization, Standing and Power. The Company is duly organized, validly existing and in good standing under the laws of
the State of West Virginia and has the requisite corporate power and authority to carry on its business as now being conducted.
The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect.
For purposes of this Agreement, the term “GS Energy Material Adverse Effect” means any Material Adverse
Effect with respect to the Member or the Company, taken as a whole, or any change or effect that adversely, or is reasonably expected
to adversely, affect the ability of the Members or the Company to consummate the transactions contemplated by this Agreement in
any material respect or materially impairs or delays the Company’s ability to perform its obligations hereunder.

 

3.3
Authority to Execute and Perform Agreement; No Breach. The Members and the Company have the full legal right and power
and all authority and approval required to enter into, execute and deliver this Agreement, and to sell, assign, transfer and convey
the Member Interests and to perform fully the respective obligations hereunder. This Agreement has been duly executed and delivered
by the Member and the Company, assuming due execution and delivery by, and enforceability against, Royal, constitutes the valid
and binding obligation of the Members and Company enforceable in accordance with its terms, subject to the qualifications that
enforcement of the rights and remedies created hereby is subject to (a) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors, and (b) general
principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). No approval or
consent of, or filing with, any Governmental Entity, and no approval or consent of, or filing, with any other Person is required
to be obtained by the Member or the Company or in connection with the execution and delivery by the Members and the Company of
this Agreement and consummation and performance by them of the transactions contemplated hereby.

 

3.4
No Violations. The execution, delivery and performance of this Agreement by the Members and the Company and the consummation
of the transactions contemplated hereby, in accordance with the terms and conditions hereof, will not:

 

	 	(a)	violate,
    conflict with or result in the breach of any of the terms of, or constitute (or with notice or lapse of time or both would
    constitute) a default under, any contract, lease, agreement or other instrument or obligation to which the Members or the
    Company is a party;
	 	 	 
	 	(b)	violate
    any order, judgment, injunction, award or decree of any court, arbitrator, governmental or regulatory body, by which the Members
    or the Company or the securities, assets, properties or business of the Members or the Company is bound; or
	 	 	 
	 	(c)	violate
    any statute, law or regulation to which the Members or the Company is subject.

 

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3.5
Securities Matters. The Members hereby represents, warrants and covenant to Royal as follows:

 

	 	(a)	The
    Members have been advised that the Royal Stock has not been registered under the Securities Act, or any state securities act
    in reliance on exemptions therefrom.
	 	 	 
	 	(b)	The
    Members agree that the certificate or certificates representing the Royal Stock will be inscribed with substantially the following
    legend:
	 	 	 
	 	 	 “The
    securities represented by this certificate have not been registered under the Securities Act of 1933. The securities have
    been acquired for investment and may not be sold, transferred or assigned in the absence of an effective registration statement
    for these securities under the Securities Act of 1933 or an opinion of counsel acceptable to the issuer of the securities
    represented by this certificate that registration is not required under said Act.”
	 	 	 
	 	(c)	The
    Members acknowledge that an investment in Royal is subject to a high degree of risk and that, even though Royal’s common
    stock is quoted on the OTC Markets, there exists a limited established trading market for the Royal Stock.
	 	 	 
	 	(d)	The
    Members are acquiring the Royal Stock for their own account and not with a view toward the gifting, distribution or resale
    thereof, and the Members agree that the Members will not sell or offer to sell any portion of the Royal Stock, or negotiate
    in respect thereof with any person or persons whomsoever, so as thereby to bring the transaction in which the Members acquired
    the Royal Stock within the provisions of Section 5 of the Securities Act of 1933, as amended, or the registration requirement
    of any other federal or state securities statute.
	 	 	 
	 	(e)	The
    Members further represent and warrant to Royal that (i) the Members have reviewed the financial statements of Royal, the reports
    filed by Royal with the Securities and Exchange Commission (available at www.sec.gov), and have been presented with
    and has acted upon the opportunity to ask questions of and receive answers from Royal relating to the business and financial
    condition of Royal and to obtain any additional information necessary to verify the accuracy of the information made available
    to Members; (ii) Members have had the opportunity to fully negotiate the terms and conditions of this Agreement; (iii) Members
    understand and acknowledge that the Royal Stock Members are acquiring hereby are a speculative security and involves a high
    degree of risk and that no federal or state agency has made any finding or determination as to the fairness for public or
    private investment in, nor any recommendations or endorsement of, such Royal Stock as an investment; (iv) the Members have
    such knowledge and experience in business and financial matters that Members are capable of evaluating the merits and risks
    of an investment in the Royal Stock; (v) Members’ financial situation is such that Members can afford the risks of an
    investment in the Royal Stock; and (vi) Members also represent that they have (i) adequate means of providing for his, her
    or its current needs and possible personal contingencies, and (ii) has no need for liquidity in the Royal Stock. 
	 	 	 
	 	(f)	The
    Members have become aware of the offering of the Royal Stock other than by means of general advertising or general solicitation.

 

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3.6
Capital Structure. As of the Effective Date, the Members are the sole owners of the Member Interests, which constitute
all of the issued and outstanding membership interests of the Company. All such Member Interests have been duly authorized and
validly issued, and are fully paid and nonassessable and not subject to preemptive or similar rights. No bonds, debentures, notes
or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the
right to vote) are issued or outstanding. The Company does not have and, at or after Closing will not have, any outstanding options,
warrants, calls, subscriptions or other rights, agreements or commitments which either (a) obligates the Company to issue, sell
or transfer, repurchase, redeem or otherwise acquire or vote any membership units of the Company, or (b) restricts the voting,
disposition or transfer of the membership units of the Company. There are no outstanding appreciation rights or similar derivative
securities or rights of the Company.

 

3.7
Subsidiaries. The Company does not own, directly or indirectly, any of the capital stock of any other corporation or any
equity, profit sharing, participation or other interest in any corporation, partnership, joint venture or other entity.

 

3.8
Intellectual Property. The Company does not own or use any trademarks, trade names, service marks, patents, copyrights
or any applications with respect thereto. Neither the Members nor the Company have Knowledge of any claim that, or inquiry as
to whether, any product, activity or operation of the Company infringes upon or involves, or has resulted in the infringement
of, any trademarks, trade names, service marks, patents, copyrights or other proprietary rights of any other Person, corporation
or other entity; and no proceedings have been instituted, are pending or are threatened with respect thereto.

 

3.9
Books and Records. The books of account and other financial records of the Company, all of which have been made available
to Royal, are complete and correct and represent actual, bona fide transactions.

 

3.10
No Employees or Benefit Plans. The Company has no (a) no employees, (b) non-qualified deferred or incentive compensation
or retirement plans or arrangements, (c) qualified retirement plans or arrangements, (d) other employee compensation, severance
or termination pay or welfare benefit plans, programs or arrangements or (e) any related trusts, insurance contracts or other
funding arrangements maintained, established or contributed to by the Company.

 

3.11
Compliance with Applicable Laws. The Company has and after giving effect to the transactions contemplated hereby will have
in effect all Permits necessary for it to own, lease or operate its properties and assets and to carry on its business as now
conducted, and to the Knowledge of the Members and the Company, no default has occurred under any such Permit. A true and correct
copy of the Permit to operate the Mine by the WVDEP is attached hereto and incorporated herein by this reference as Exhibit
E (the “Mine Permit”). To the Members and the Company’s Knowledge, the Company is in compliance
with, and has no liability or obligation under, any applicable statute, law, ordinance, rule, order or regulation of any Governmental
Entity, including any liability or obligation to undertake any remedial action under Hazardous Substances Laws (as hereinafter
defined), except for instances of non-compliance, liabilities or obligations, which individually or in the aggregate would not
have a GS Energy Material Adverse Effect.

 

3.12
Insurance. The Company’s insurance policies in effect at the time of Closing, are attached hereto and incorporated
herein by this reference as Exhibit F.

 

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3.13
Litigation, etc. As of the Effective Date, (a) there is no suit, claim, action or proceeding (at law or in equity) pending
or, to the Knowledge of the Members or the Company, threatened against the Company before any court or governmental or regulatory
authority or body, and (b) the Company is not subject to any outstanding order, writ, judgment, injunction, order, decree or arbitration
order that, in any such case described in clauses (a) and (b), (i) could reasonably be expected to have, individually or in the
aggregate, a GS Energy Material Adverse Effect or (ii) involves an allegation of criminal misconduct or a violation of the Racketeer
and Influenced Corrupt Practices Act. As of the Closing, there are no suits, actions, claims or proceedings pending or, to Members
or the Company’s Knowledge, threatened, seeking to prevent, hinder, modify or challenge the transactions contemplated by
this Agreement.

 

3.14
Environmental Matters. As of the Effective Date, neither the Members nor the Company has received any written notice from
any Governmental Entity that there exists any violation of any Hazardous Substances Law (as hereinafter defined). Neither the
Members nor the Company has any Knowledge (a) of any Hazardous Substances (as hereinafter defined) present on, under or about
any of the GS Energy Mine, which are subject to the Operator Agreement, and to Knowledge of the Members or the Company, no discharge,
spillage, uncontrolled loss, seepage or filtration of Hazardous Substances has occurred on, under or about any portion of the
GS Energy Mine, (b) that GS Energy violates, or has at any time violated, any Hazardous Substance Laws, and (c) that there is
a condition on any asset other than the GS Energy Mine, for which the Company has or had an obligation to undertake any remedial
action pursuant to Hazardous Substance Laws. For purposes hereof, “Hazardous Substances” means, without
limitation (i) those substances included within definitions of any one or more of the terms “Hazardous Substance,”
and “Hazardous Waste,” “Toxic Substance” and “Hazardous Material” in the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C. § 90,601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
§ 6901, et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. § 1801 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651, et seq., (insofar as it relates
to employee health and safety in relation to exposure to Hazardous Substances) and any other local, state, federal or foreign
laws or regulations related to the protection of public health or the environment (collectively, “Hazardous Substances
Laws”); (ii) such other substances, materials or wastes as are or become regulated under, or as are classified as
hazardous or toxic under Hazardous Substance Laws; and (iii) any materials, wastes or substances that can be defined as (v) petroleum
products or wastes; (w) asbestos; (x) polychlorinated biphenyl; (y) flammable or explosive; or (z) radioactive.

 

3.15
Financial Statements of Company. The Members have previously delivered to the Royal the financial statements of the Company
for the following periods: a balance sheet as of December 31, 2013 and 2014, and income statement for the periods ended December
31, 2013 and 2014 (the “Financial Statements”), which are incorporated herein by reference. The Financial
Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) consistently applied
and present fairly the financial position, assets and liabilities as of the dates thereof and the revenues, expenses, results
of operations and cash flows of the Contributor for the periods covered then ended. The Financial Statements are in accordance
with the books and records of the Company, and do not reflect any transactions which are not bona fide transactions. The Financial
Statements make full and adequate disclosure of, and provision for, all obligations and liabilities of as of the date thereof.
All of the Company’s revenues that have arisen in connection with the business and that are reflected on the Financial Statements
shall have arisen only from bona fide transactions in the ordinary course of business.

 

3.16
Absence of Material Adverse Change. Except as disclosed in or reflected in the Financial Statements, if applicable, the
Company has not (i) suffered any Material Adverse Effect, or (ii) suffered any damage, destruction or loss to any of their assets
or properties (whether or not covered by insurance).

 

3.17
Disclosure. The representations and warranties and statements of fact made by the Members and the Company in this Agreement
are, as applicable, accurate, correct and complete and do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information contained herein not false or misleading.

 

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ARTICLE
IV 

REPRESENTATIONS
AND WARRANTIES OF ROYAL

 

Royal
hereby represents and warrants to the Members and the Company as follows (it being acknowledged that the Members and the Company
are entering into this Agreement in material reliance upon each of the following representations and warranties, and that the
truth and accuracy of each, as evidenced by the execution of this Agreement by a duly authorized officer of Royal, constitutes
a condition precedent to the obligations of the Members and the Company hereunder):

 

4.1
Organization, Standing and Power. Royal is duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted. Royal is
duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where
the failure to be so qualified or licensed (individually or in the aggregate) would not have a Royal Material Adverse Effect.
For purposes of this Agreement, the term “Royal Material Adverse Effect” means any Material Adverse
Effect with respect to Royal, taken as a whole, or any change or effect that adversely, or is reasonably expected to adversely,
affect the ability of Royal to consummate the transactions contemplated by this Agreement in any material respect or materially
impairs or delays Royal’s ability to perform its obligations hereunder. Royal has made available to the Members and the
Company complete and correct copies of its charter documents and bylaws.

 

4.2
Capital Structure. As of the Effective Date, the authorized capital stock of Royal consists of 500,000,000 shares of common
stock and 10,000,000 shares of preferred stock, of which 11,718,230 shares of common stock and 51,000 shares of preferred stock
were issued and outstanding. All outstanding shares of capital stock of Royal will have been duly authorized and validly issued,
and will be fully paid and nonassessable and not subject to preemptive or similar rights.

 

4.3
Authority; Noncontravention. Royal has the requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement by Royal
and the consummation by Royal of the transactions contemplated hereby have been duly authorized by all necessary corporate action
on the part of Royal. This Agreement has been duly executed and delivered by Royal and, assuming this Agreement constitutes the
valid and binding agreement of the Members and the Company, constitutes a valid and binding obligation of Royal, enforceable against
Royal in accordance with its terms, subject to (a) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other laws of general application affecting the rights and remedies of creditors, and (b) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity). The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof, will not,
(x) conflict with any of the provisions of the charter documents or bylaws of Royal, (y) subject to the governmental filings and
other matters referred to in the following sentence, conflict with, result in a breach of or default (with or without notice or
lapse of time, or both) under, or give rise to a right of first refusal, termination, cancellation or acceleration of any obligation
(including to pay any sum of money) or loss of a benefit under, or require the consent of any Person under, any indenture or other
agreement, Permit, concession, ground lease or similar instrument or undertaking to which Royal is a party or by which Royal or
any of its assets are bound or affected, result in the creation or imposition of a Lien against any material asset of Royal, which,
singly or in the aggregate, would have a Royal Material Adverse Effect, or (z) subject to the governmental filings and other matters
referred to in the following sentence, contravene any law, rule or regulation, or any order, writ, judgment, injunction, decree,
determination or award binding on Royal currently in effect, which in the case of clauses (y) and (z) above, singly or in the
aggregate, would have a Royal Material Adverse Effect. No consent, approval or authorization of, or declaration or filing with,
or notice to, any Governmental Entity or any third party which has not been received or made is required by or with respect to
Royal in connection with the execution and delivery of this Agreement by Royal or the consummation by Royal of the transactions
contemplated hereby, except for consents, approvals, authorizations, declarations, filings and notices that, if not obtained or
made, will not, individually or in the aggregate, result in a Royal Material Adverse Effect.

 

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ARTICLE
V 

INDEMNIFICATION

 

5.1
Indemnification of the Members and the Company.

 

	 	(a)	Royal
    shall, from and after the Closing, indemnify, defend and hold harmless the Members, and the Company’s officers, directors,
    Affiliates or agents, and any other Person acting on its behalf (the “GS Energy Indemnified Parties”)
    against all losses, claims, damages, costs, expenses (including reasonable attorneys’ fees and expenses), liabilities
    or judgments or amounts that are paid in settlement with the approval of the indemnifying party (the “GS Energy
    Indemnified Liabilities”) based on, or arising out of, or pertaining to a breach of any representation, warranty
    or covenant made by Royal in this Agreement, in each case, to the fullest extent permitted under the laws of the State of
    Delaware.
	 	 	 
	 	(b)	The
    GS Energy Indemnified Parties shall have the right to conduct the defense of any action giving rise to a claim for indemnity
    under this Agreement with counsel of their own choosing. The Members, the Company and Royal agree that all rights to indemnification,
    including provisions relating to advances of expenses incurred in defense of any action or suit, existing in favor of the
    GS Energy Indemnified Parties with respect to matters occurring through the Closing, shall survive the Exchange and shall
    continue in full force and effect for a period of not less than one year from the Closing; provided, however, that
    all rights to indemnification in respect of any GS Energy Indemnified Liabilities asserted or made within such period shall
    continue until the disposition of such GS Energy Indemnified Liabilities.
	 	 	 
	 	(c)	The
    provisions of this Section 5.1 are intended to be for the benefit of, and shall be enforceable by, each GS Energy Indemnified
    Party, his or her heirs and his or her personal representatives and shall be binding upon all successors and assigns of Royal,
    the Members and the Company.

 

5.2
Indemnification of Royal.

 

	 	(a)	The
    Members and the Company, jointly and severally shall, from and after the Closing, indemnify, defend and hold harmless Royal
    and Royal’s officers, directors, Affiliates or agents, and any other Person acting on its behalf (the “Royal
    Indemnified Parties”) against all losses, claims, damages, costs, expenses (including reasonable attorneys’
    fees and expenses), liabilities or judgments or amounts that are paid in settlement with the approval of the indemnifying
    party (the “Royal Indemnified Liabilities”) based on, or arising out of, or pertaining to a breach
    of any representation, warranty or covenant made by the Members or the Company in this Agreement, in each case, to the fullest
    extent permitted under the laws of the State of Delaware. 

 

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	 	(b)	The
    Royal Indemnified Parties shall have the right to conduct the defense of any action giving rise to a claim for indemnity under
    this Agreement with counsel of their own choosing. The Members, the Company and Royal agree that all rights to indemnification,
    including provisions relating to advances of expenses incurred in defense of any action or suit, existing in favor of the
    Royal Indemnified Parties with respect to matters occurring through the Closing, shall survive the Exchange and shall continue
    in full force and effect for a period of not less than one year from the Closing; provided, however, that all rights
    to indemnification in respect of any Royal Indemnified Liabilities asserted or made within such period shall continue until
    the disposition of such Royal Indemnified Liabilities.
	 	 	 
	 	(c)	The
    provisions of this Section 5.2 are intended to be for the benefit of, and shall be enforceable by, each Royal Indemnified
    Party, his or her heirs and his or her personal representatives and shall be binding upon all successors and assigns of Royal,
    the Members and the Company.

 

ARTICLE
VI 

CONDITIONS
PRECEDENT

 

6.1
Conditions to Each Party’s Obligation to Effect the Exchange. The respective obligation of each party to effect the
Exchange is subject to the satisfaction or written waiver of the following conditions:

 

	 	(a)	No
    Injunctions or Restraints. No statute, rule, regulation, temporary restraining order, preliminary or permanent injunction
    or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation
    of the Exchange shall be in effect; provided, however, that the party invoking this condition shall use its best efforts
    to have any such temporary restraining order, injunction, order, restraint or prohibition vacated.
	 	 	 
	 	(b)	Governmental
    and Regulatory Consents. All material filings required to be made prior to the Closing with, and all material consents,
    approvals, permits and authorizations required to be obtained prior to the Closing from, Governmental Entities, in connection
    with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Members,
    the Company and Royal will have been made or obtained (as the case may be).
	 	 	 
	 	(c)	Board
    Representation. At the Closing and pursuant to a written consent to action of the Board of Directors of GS Energy, (i)
    the Board of Directors or Managers, however the case may be, shall be reconstituted to two (2) members, one to which shall
    be the nominee of the Company, initially selected as Gary Ganzer, and the other, to which shall be the nominee of Royal, initially
    selected as William Tuorto; and (ii) which members shall serve for an initial two-year period, unless terminated sooner as
    a result of the Members exercise of the Call Option or Royal’s exercise of the Put Option as provided herein.

 

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6.2
Conditions to Obligations of the Members and the Company. The obligations of the Members and the Company to effect the
Exchange are further subject to the satisfaction or written waiver on or prior to the Closing of the following conditions:

 

	 	(a)	Representations
    and Warranties. The representations and warranties of Royal set forth in Article IV that are qualified as to materiality
    or Material Adverse Effect shall be true and correct and the representations and warranties of Royal set forth in Article
    IV that are not so qualified shall be true and correct in all material respects, in each case as of the Closing, except to
    the extent such representations and warranties speak as of an earlier date. In addition, all such representations and warranties
    shall be true and correct as of the Closing, except to the extent such representation or warranty speaks of an earlier date
    (without regard to any qualifications for materiality or Material Adverse Effect) except to the extent that any such failure
    to be true and correct (other than any such failure the effect of which is immaterial) individually and in the aggregate with
    all such other failures would not have a Material Adverse Effect, and the Members shall have received a certificate signed
    on behalf of Royal by the chief executive officer of Royal to the effect set forth in this paragraph.
	 	 	 
	 	(b)	Performance
    of Obligations of Royal. Royal shall have performed in all material respects all obligations required to be performed
    by it under this Agreement at or prior to the Closing.

 

6.3
Conditions to Obligations of Royal. The obligation of Royal to effect the Exchange is further subject to the satisfaction
or written waiver on or prior to Closing of the following conditions:

 

	 	(a)	Representations
    and Warranties. The representations and warranties of the Members and the Company set forth in Article III that are qualified
    as to materiality or Material Adverse Effect shall be true and correct and the representations and warranties of the Members
    and the Company set forth in Article III set forth in Article III that are not so qualified shall be true and correct in all
    material respects, in each case as of the Closing. In addition, all such representations and warranties shall be true and
    correct as of the Closing, except to the extent such representation or warranty speaks of an earlier date (without regard
    to any qualifications for materiality or Material Adverse Effect) except to the extent that any such failure to be true and
    correct (other than any such failure the effect of which is immaterial) individually and in the aggregate with all such other
    failures would not have a Material Adverse Effect, and Royal shall have received a certificate signed on behalf of the Company
    by the Members of the Company to the effect set forth in this paragraph.
	 	 	 
	 	(b)	Performance
    of Obligations of the Members and the Company. The Members and the Company shall have performed in all material respects
    all obligations required to be performed by them under this Agreement at or prior to the Closing.
	 	 	 
	 	(c)	Audit
    of Company. The delivery to Royal of an audit of the Company prepared according to generally accepted accounting standards
    by a PCAOB certified auditor, which contains no qualifications other than a going concern qualification, and does not reveal
    any material changes to the Financial Statements.

 

    	11

    	 

    

 

	 	(d)	Consents.
    All consents, authorizations, orders and approvals of (or filings or registrations with) any Governmental Authority required
    in connection with the execution, delivery and performance of this Agreement shall have been obtained or made.
	 	 	 
	 	(e)	No
    Injunction. No litigation, law or order shall have been instituted, enacted, entered, threatened or proposed to enjoin,
    restrain, prohibit or obtain damages in respect of this Agreement or the consummation of the transactions contemplated thereby.
	 	 	 
	 	(f)	No
    Material Adverse Change. There shall not have occurred since the Agreement Date any GS Energy Material Adverse Change
    with respect to the Company’s business or assets, or any condition or event which threatens such a GS Energy Material
    Adverse Change, and the Members shall have delivered to Royal a certificate dated as of the Closing Date certifying as to
    the foregoing statement. 
	 	 	 
	 	(g)	Acceptance
    by Royal. All actions, proceedings, instruments, opinions and documents required or contemplated by this Agreement shall
    have been approved by counsel for Royal, which approval shall not be unreasonably withheld or delayed.
	 	 	 
	 	(h)	Consent
    of Counter-Parties. The Company shall have obtained the consent of the counter-parties to all Contracts to the extent
    their consent is required thereunder. 
	 	 	 
	 	(i)	Closing
    Documents. Delivery by the Company and the Members of all documents which they are required to deliver to Royal pursuant
    to Section 2.2 herein.

 

ARTICLE
VII 

CONDITIONS
SUBSEQUENT

 

7.1
Call Option.

 

	 	(a)	Royal
    hereby grants to the Members the right and option to purchase the Member Interests (the “Call Option”)
    for the Exercise Price (as hereinafter defined, the “Exercise Price”). The Call Option may only
    be exercised by the Members delivering a written notice of exercise of the Call Option to Royal at its executive offices,
    located at 56 Broad Street, Suite 2, Charleston, SC 29401, or such other place as Royal may designate by written notice to
    the Members, together with the Exercise Price, duly endorsed by the Members. The Call Option granted hereunder may only be
    exercised in whole. Except as set forth in Sections 7.1(b) and (g), the Call Option may be exercised at any time, and for
    any reason in the Members sole discretion, during the period commencing ten (10) months after the Closing Date and ending
    twenty-four (24) months after the Closing Date herein (the “Exercise Term”).
	 	 	 
	 	(b)	The
    Call Option shall automatically terminate when any of the following conditions occur during the Exercise Term: (i) the Members
    terminate the Call Option in writing to Royal; or (ii) if Royal pays the Members $9,600,000 cash in exchange for the Royal
    Stock; or (iii) Royal replaces the “Surety Bond”, for the Mine as detailed and provided herein below in Section
    7.3. 

 

    	12

    	 

    

 

	 	(c)	For
    purposes of this Section 7.1 the term “Exercise Price” shall mean as follows:

 

	 	(i)	During
    the portion of the Exercise Term from ten (10) months after the Closing Date to and through sixteen (16) months after the
    Closing Date, the Exercise Price shall be (i) Two Hundred Thousand Dollars And No Cents ($200,000.00), less any dividends
    or distributions received by Royal from Blue Grove (but not below $0), plus (ii) ninety-five percent (95%) of the Royal Stock
    issuable to the Members hereunder; and
	 	 	 
	 	(ii)	During
    the portion of the Exercise Term from sixteen (16) months after the Closing Date to and through twenty-four (24) months after
    the Closing Date, ninety percent (90%) of the Royal Stock issuable to the Members hereunder. 

 

	 	(d)	The
    Call Option shall be deemed to have been exercised, and the Members shall be deemed to be the owner and holder of record of
    all of the Member Interests, as of the date of the notice of exercise of the Call Option (the “Exercise Date”).
    
	 	 	 
	 	(e)	In
    the event the Members exercise the Call Option, they agree that they will take the Member Interests and the Company, “AS
    IS”, without any representation or warranty of any kind or nature whatsoever, and that there is no obligation to reconvey
    the Member Interests or the Company to the Members in the same legal or financial condition that it existed as of the Closing
    Date, except for the warranty set forth in subsection (f) below. 
	 	 	 
	 	(f)	Royal
    hereby agrees that it shall not sell, assign, pledge, hypothecate, or otherwise grant any lien or encumbrance on the Member
    Interests during the Exercise Term without the prior written consent of the Members.
	 	 	 
	 	(g)	Notwithstanding
    the foregoing, the parties agree that the Members may, at any time during the Exercise Term, exercise the Call Option, with
    notice, (i) upon the institution by or against Royal of insolvency, receivership or bankruptcy proceedings or any other proceedings
    for the settlement of Royal’s debts, (ii) upon Royal making an assignment for the benefit of creditors, or (iii) upon
    Royal’s dissolution or ceasing to do business.

 

7.2
Put Option. For and in consideration of $400,000.00, payable at the Closing, the Members hereby grants to Royal the right
and option to sell the Member Interests (the “Put Option”), for a term of twenty-four (24) months, by
delivery to the Members of the Membership Units. The Put Option may only be exercised by delivering a written notice of exercise
of the Put Option to the Members at their executive offices, located at 304 Waitman Street, Morgantown, West Virginia 26501, or
such other place as the Members may designate by written notice to Royal, together with the Membership Units, duly endorsed by
Royal. The Put Option granted hereunder may only be exercised in whole. The Put Option may be exercised at any time, and for any
reason in Royal’s sole discretion, during the period from the Closing Date and ending twenty-four (24) months after the
Closing Date herein. To the extent Royal exercises its Put Option from ten (10) months after the Closing Date to and through sixteen
(16) months after the Closing Date, the Members shall be entitled to retain five (5) percent of the Royal Stock, and from sixteen
(16) months after the Closing Date to and through twenty-four (24) months after the Closing Date, ten percent (10%) of the Royal
Stock issuable to the Members hereunder.

 

    	13

    	 

    

 

7.3
Surety Bonding. During the Exercise Term, the Members may request in writing that Royal replace that certain reclamation
surety bond, in the cash amount of approximately $380,000.00 (the “Surety Bond”), posted with the WVDEP
Division of Mining and Reclamation. To the extent Royal replaces the Surety Bond within a commercially reasonable time, not to
exceed ninety (90) days, the Members hereby agree that the Call Option as provided herein will terminate. Further, to the extent
the Call Option is not exercise within the Exercise Term, Royal agrees to replace the Surety Bond, within a commercially reasonable
time, not to exceed ninety (90) days.

 

ARTICLE
VIII 

GENERAL
PROVISIONS

 

8.1
Survival of Representations and Warranties. Except as otherwise contemplated herein, the representations and warranties
in this Agreement and in any instrument delivered pursuant to this Agreement shall survive the Closing for a period of one year.

 

8.2
Fees and Expenses. Each party agrees to pay for its own expenses associated with this Agreement and the consummation of
the transactions contemplated hereby.

 

8.3
Definitions. For purposes of this Agreement, and except as otherwise defined in this Agreement:

 

	 	(a)	“Affiliate”
    of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled
    by, or is under common control with, such first person;
	 	 	 
	 	(b)	“Governmental
    Entity” means any domestic or foreign governmental agency or regulatory authority;
	 	 	 
	 	(c)	“Knowledge”
    means actual knowledge. In order for an individual to have Knowledge of a fact or matter, the individual must be actually
    aware of that fact or matter. A Person (other than an individual) will be deemed to have Knowledge of a particular fact or
    matter if any individual who is serving, or who has at any time served, as a director, officer, partner, executor or trustee
    of that Person (or in any similar capacity) has, or at any time had, Knowledge of that fact or matter.
	 	 	 
	 	(d)	“Liens”
    means, collectively, all material pledges, claims, liens, charges, mortgages, conditional sale or title retention agreements,
    hypothecations, collateral assignments, security interests, easements and other encumbrances of any kind or nature whatsoever;
	 	 	 
	 	(e)	“Material
    Adverse Effect” with respect to any Person means an event that has had or would reasonably be expected to have
    a material adverse effect on the business, financial condition or results of operations of such Person and its subsidiaries
    taken as a whole;
	 	 	 
	 	(f)	“Permits”
    means federal, state, local and foreign governmental approvals, authorizations, certificates, filings, franchises, licenses,
    notices, permits an rights; and
	 	 	 
	 	(g)	“Person”
    means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity.
	 	 	 
	 	(h)	“Record”
    means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable
    in perceivable form.
	 	 	 
	 	(i)	“Securities
    Act” means the Securities Act of 1933, as amended.

 

    	14

    	 

    

 

8.4
Usage. In this Agreement, unless a clear contrary intention appears:

 

	 	(a)	the
    singular number includes the plural number and vice versa;
	 	 	 
	 	(b)	reference
    to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns
    are not prohibited by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other
    capacity or individually;
	 	 	 
	 	(c)	reference
    to any gender includes each other gender or, in the case of an entity, the neuter;
	 	 	 
	 	(d)	reference
    to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect
    from time to time in accordance with the terms thereof, and shall be deemed to refer as well to all addenda, exhibits and
    schedules;
	 	 	 
	 	(e)	reference
    to a Section or Schedule, such reference shall be to a Section of, or a Schedule to, this Agreement unless otherwise indicated
	 	 	 
	 	(f)	reference
    to any law means such law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time
    to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any law
    means that provision of such law from time to time in effect and constituting the substantive amendment, modification, codification,
    replacement or reenactment of such section or other provision;
	 	 	 
	 	(g)	the
    table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way
    the meaning or interpretation of this Agreement.
	 	 	 
	 	(h)	“hereunder”,
    “hereof”, “hereto” and words of similar import shall be deemed references to this Agreement as a whole
    and not to any particular Article, Section or other provision thereof;
	 	 	 
	 	(i)	“including”
    (and with correlative meaning “include”) means including without limiting the generality of any description preceding
    such term;
	 	 	 
	 	(j)	“or”
    is used in the inclusive sense of “and/or;” and
	 	 	 
	 	(k)	with
    respect to the determination of any period of time, “from” means “from and including” and “to”
    means “to but excluding.”

 

    	15

    	 

    

 

8.5
Counterparts. This Agreement may be executed in two or more counterparts.

 

8.6
Entire Agreement; Third-Party Beneficiaries. This Agreement constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement.
This Agreement is not intended to confer upon any Person other than the parties hereto and the third party beneficiaries referred
to in the following sentence, any rights or remedies.

 

8.7
Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of West Virginia.

 

8.8
Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned,
in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties,
and any such assignment that is not consented to shall be null and void. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

 

8.9
Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms
and provisions of this Agreement in any court of the United States located in the State of Idaho, this being in addition to any
other remedy to which they are entitled at law or in equity.

 

8.10
Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such
manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is
held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, so long as the
economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party,
such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.

 

    	16

    	 

    

 

IN
WITNESS WHEREOF, Royal and GS Energy have executed this Agreement to be effective as of the Effective Date.

 

	ROYAL
    ENERGY RESOURCES, INC.	 
	 	 	 
	By:
    		 
	 	William L. Tuorto,
    CEO 	 
	 	 	 
	GS
    ENERGY, LLC	 
	 	 	 
	By:
    		 
	 	Ian Ganzer, Authorized
    Member	 
	 	 	 
	IAN
    GANZER	 
	 	 	 
	By:
    		 
	 	Ian Ganzer	 
	 	 	 
	GARY
    GANZER	 
	 	 	 
	By:
    		 
	 	Gary Ganzer	 

 

    	17

    	 

    

 

EXHIBIT
A

 

(“Employment
Agreement”)

 

    	18

    	 

    

 

EXHIBIT
B

 

(“Management
Agreement”)

 

    	19

    	 

    

 

EXHIBIT
C

 

(“Operating
Agreement Amendment”)

 

    	20

    	 

    

 

EXHIBIT
D

 

(“Operator
Agreement”)

 

    	21

    	 

    

 

EXHIBIT
E

 

(“Mine
Permit”)

 

    	22

    	 

    

 

EXHIBIT
F

 

(“Insurance”)

 

    	23ex10-1.htm

Exhibit 10.1

ADVISORY AGREEMENT

 

THIS ADVISORY AGREEMENT, dated as of _________, 2015, is between RICH UNCLES REIT, INC., a real estate investment trust organized under the laws of the State of Maryland (the “Company”) and RICH UNCLES REIT OPERATOR, LLC (the “Advisor”).

 

WITNESSETH

 

WHEREAS, the Company intends to qualify as a REIT (as defined below), and to invest its funds in investments permitted by the terms of the Prospectus, Articles of Incorporation and Bylaws of the Company and Sections 856 through 860 of the Code (as defined below);

 

WHEREAS, the Company desires to avail itself of the experience, knowledge, sources of information, advice, assistance and contacts 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, on the terms and 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:

 

1. Definitions.  As used in this Advisory Agreement (the “Agreement”), the following terms have the definitions hereinafter indicated:

 

Acquisition Expenses.  Any and all expenses incurred by the Company, the Advisor, or any Affiliate of either in connection with the selection, acquisition or making of any investment, including any Property or other Permitted Investment, whether or not acquired, including, without limitation, legal fees and expenses, travel and communication expenses, costs of appraisals, nonrefundable option payments on property not acquired or made, accounting fees and expenses, and title insurance.

 

Acquisition Fees.  Any and all fees and commissions, exclusive of Acquisition Expenses, paid by any Person or entity to any other Person or entity (including any fees or commissions paid by or to any Affiliate of the Company or the Advisor) in connection with making an investment including making or investing in Properties or other Permitted Investments or the purchase, development or construction of a Property, including, without limitation, real estate commissions, acquisition fees, finder's fees, selection fees, development fees, construction fees, nonrecurring management fees, consulting fees, loan fees, points, or any other fees or commissions of a similar nature.  Excluded shall be development fees and construction fees paid to any Person or entity not Affiliated with the Advisor in connection with the actual development and construction of any Property. Further, Acquisition Fees will not be paid in connection with temporary short-term investments acquired for purposes of cash management.

 

Advisor.  Rich Uncles REIT Operator, LLC, a Delaware limited liability company, any successor Advisor to the Company, or any Person or entity to which Rich Uncles REIT Operator, LLC, or any successor advisor subcontracts substantially all of its functions.  The Advisor will have responsibility for the day-to-day operations of the Company.

 

  

  

  

 

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

 

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

 

Articles of Incorporation.  The Articles of Incorporation of the Company as filed with the Secretary of State of Maryland, as amended from time to time.

 

Asset Management Fee.  The fee payable to the Advisor for day-to-day professional management services in connection with the Company and its investments in Properties and other Permitted Investments pursuant to this Agreement.

 

Assets.  Properties and other Permitted Investments, collectively.

 

Average Invested Assets.  For a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in equity interests in Properties, or in other Permitted Investments, 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 period.

 

Board of Directors or Board.  The Board of Directors of the Company.

 

Bylaws.  The bylaws of the Company, as the same are in effect and may be amended from time to time.

 

Cause.  With respect to the termination of this Agreement, fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by the Advisor, breach of this Agreement, a default by the Sponsor under the guarantee by the Sponsor to the Company or the bankruptcy of the Sponsor.

 

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

 

Company.  Rich Uncles REIT, Inc., a real estate investment trust organized under the laws of the State of Maryland.

 

Company Property.  Any and all property, real, personal or otherwise, tangible or intangible, including Properties and other Permitted Investments, which is transferred or conveyed to the Company (including all rents, income, profits and gains therefrom), and which is owned or held by, or for the account of, the Company.

 

 

	
ADVISORY AGREEMENT

	
Page 2

  

  

  

 

Competitive Real Estate Commission.  A real estate or brokerage commission for the purchase or sale of property, which is reasonable, customary, and competitive in light of the size, type, and location of the property.  The total of all real estate commissions paid by the Company to all Persons (not including the Subordinated Participation Fee payable to the Advisor) in connection with any Sale of one or more of the Company’s Properties shall not exceed the lesser of (i) a Competitive Real Estate Commission or (ii) six percent of the gross sales price of the Property or Properties.

 

Contract Purchase Price.  The amount actually paid or allocated (as of the date of purchase) to the purchase, development, construction or improvement of property, exclusive of Acquisition Fees and Acquisition Expenses.

 

Contract Sales Price.  The total consideration received by the Company for the sale of Company Property.

 

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

 

Independent Appraiser.  A qualified appraiser of real estate as determined by the Board.  Membership in a nationally recognized appraisal society such as the Appraisal Institute (“MAI”) or the Society of Real Estate Appraisers (“SREA”) shall be conclusive evidence of such qualification.

 

Independent Director.  A Director who is not and within the last two years has not been directly or indirectly associated with the Advisor by virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii) employment by the Advisor or its Affiliates, (iii) service as an officer or director of the Advisor or its Affiliates, (iv) performance of services, other than as a Director, for the Company, (v) service as a director or trustee of more than three real estate investment trusts advised by the Advisor, or (vi) maintenance of a material business or professional relationship with the Advisor or any of its Affiliates.  A business or professional relationship is considered material if the gross revenue derived by the Director from the Advisor and Affiliates exceeds 5% of either the Director's annual gross revenue during either of the last two years or the Director's net worth on a fair market value basis.  An indirect relationship shall include circumstances in which a Director's spouse, parents, children, siblings, mothers- or fathers-in-law, sons- or daughters-in-law, or brothers- or sisters-in-law are or have been associated with the Advisor, any of its Affiliates, or the Company.

 

Independent Expert.  A Person or entity with no material current or prior business or personal relationship with the Advisor or the Directors and who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Company.

 

Invested Capital.  The Original Invested Capital less Distributions in excess of the Stockholders’ 6.5% Return.

 

Joint Ventures.  The joint venture or general partnership arrangements in which the Company is a co-venturer or general partner which are established to acquire Properties or other Permitted Investments.

 

 

	
ADVISORY AGREEMENT

	
Page 3

  

  

  

 

Net Cash Flow.  For any period, the gross cash proceeds from operations including from all sales and other dispositions and all refinancings of the Property less the portion thereof used to pay all Operating Expenses, debt payments, capital improvements, or to establish reserves for such expenses, asset replacements and contingencies, all as determined by the Directors.  Net Cash Flow shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established.  Additionally, Net Cash Flow shall include all principal and interest payments with respect to any note or other obligation received by the Company in connection with sales and other dispositions of Company Property.

 

Offering.  The initial offering of Shares pursuant to a registration statement filed with the Securities and Exchange Commission on Form S-11.

 

Operating Expenses.  All costs and expenses incurred by the Company, as determined under generally accepted accounting principles, which in any way are related to the operation of the Company or to Company business, including (a) advisory fees, (b) the Asset Management Fee, and (c) the Subordinated Participation Fee, but excluding (i) the expenses of raising capital such as Organizational and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration of the Shares; (ii) interest payments; (iii) taxes; (iv) non-cash expenditures such as depreciation, amortization and bad loan reserves; and (v) Acquisition Fees and Acquisition Expenses, real estate or other commissions on the Sale of Assets, and other expenses connected with the acquisition, and ownership of real estate interests, Properties or other Permitted Investments (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property).

 

Organizational and Offering Expenses.  Any and all costs and expenses, other than selling commissions, the marketing support fee and due diligence expense reimbursements incurred by the Company, the Advisor or any Affiliate of either in connection with the formation, qualification and registration of the Company and the marketing and distribution of Shares, including, without limitation, the following: legal, accounting and escrow fees; printing, amending, supplementing, mailing and distributing costs; filing, registration and qualification fees and taxes; telegraph and telephone costs; and all advertising and marketing expenses, including the costs related to investor and broker-dealer sales meetings.

 

Original Invested Capital.  The amount calculated by multiplying the total number of Shares issued and outstanding by the offering price per share, without deduction for selling commissions, the marketing support fee, due diligence expense reimbursements or Organizational and Offering Expenses.

 

Permitted Investments.  All investments that the Company may acquire pursuant to its Articles of Incorporation and bylaws, other than the short-term investments acquired for purposes of cash management.

 

Person.  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.

 

 

	
ADVISORY AGREEMENT

	
Page 4

  

  

  

 

Property or Properties.  Interests in (i) the real properties, including the buildings an equipment located thereon: or (ii) the real properties only; or (iii) the buildings only, including equipment located therein; any of which are acquired by the Company, either directly or indirectly through joint ventures, or other partnerships, or other legal entities.

 

Prospectus.  “Prospectus” means any document by whatever name known, utilized for the purpose of offering and selling securities to the public.

 

Real Estate Asset Value.  The amount actually paid or allocated to the purchase, development, construction or improvement of a Property, exclusive of Acquisition Fees and Acquisition Expenses.

 

REIT.  A “real estate investment trust” as defined pursuant to Sections 856 through 860 of the Code.

 

Sale or Sales.  (i)  Any transaction or series of transactions whereby: (A) the Company sells, grants, transfers, conveys or relinquishes its ownership of any Property or portion thereof, including the lease of any Property or other Permitted Investment consisting of the building only, and including any event with respect to any Property which gives rise to a significant amount of insurance proceeds or condemnation awards; (B) the Company sells, grants, transfers, conveys or relinquishes its ownership of all or substantially all of the interest of the Company in any Joint Venture in which it is a co-venturer or partner; (C) any Joint Venture in which the Company as a co-venturer or partner sells, grants, transfers, conveys or relinquishes its ownership of any Property or other Permitted Investment or portion thereof, including any event with respect to any Property or other Permitted Investment which gives rise to insurance claims or condemnation awards; or (D) the Company sells, grants, conveys or relinquishes its interest in any Property or other Permitted Investment, or portion thereof, including any event with respect to any Property or other Permitted Investment, which gives rise to a significant amount of insurance proceeds or similar awards, but (ii) shall not include any transaction or series of transactions specified in clause (i)(A), (i)(B), or (i)(C) above in which the proceeds of such transaction or series of transactions are reinvested in one or more Properties or other Permitted Investments within 180 days thereafter.

 

Securities.  Any common shares or preferred shares, as such terms are defined in the Company’s Articles of Incorporation, any other Company stock, shares or other evidences of equity or beneficial or other interests, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in, temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire, any of the foregoing.

 

Shares.  The up to 100,000,000 shares of common stock, par value $.001 per share, of the Company to be sold in the Company’s initial public offering of Securities.

 

 

	
ADVISORY AGREEMENT

	
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Sponsor.  Any Person directly or indirectly instrumental in organizing, wholly or in part, the Company or any Person who will control, manage or participate in the management of the Company, and any Affiliate of such Person.  Not included is any Person whose only relationship with the Company is that of an independent property manager of the Company’s Properties or other Permitted Investments, and whose only compensation is as such.  Sponsor does not include independent third parties such as attorneys, accountants, and underwriters whose only compensation is for professional services.  A Person may also be deemed a Sponsor of the Company by:

 

(a.)           taking the initiative, directly or indirectly, in founding or organizing the business or enterprise of the Company, either alone or in conjunction with one or more other Persons;

 

(b)           receiving a material participation in the Company in connection with the founding or organizing of the business of the Company, in consideration of services or property, or both services and property;

 

(c)           having a substantial number of relationships and contacts with the Company;

 

(d)           possessing significant rights to control the Company’s Properties;

 

(e)           receiving fees for providing services to the Company which are paid on a basis that is not customary in the industry; or

 

(f)           providing goods or services to the Company on a basis which was not negotiated at arms length with the Company.

 

Stockholders.  The registered holders of the Company’s Securities.

 

Stockholders’ 6.5% Return.  As of each date, an aggregate amount equal to a 6.5% cumulative, non-compounded, annual return on Invested Capital.

 

Subordinated Participation Fee.  The Subordinated Participation Fee as defined in Paragraph 9(g).

 

Termination Date.  The date of termination of this Agreement whether pursuant to (i) the non-renewal of this Agreement under Paragraph 14 below or (ii) written notice of termination under Paragraph 15 below.

 

Total Property Cost.  With regard to any Company Property, an amount equal to the sum of the Real Estate Asset Value of such Property plus the Acquisition Expenses and the Acquisition Fees paid in connection with such Property.

 

Director.  A member of the Board of Directors of the Company.

 

 

	
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Valuation.  An estimate of value of the Assets of the Company as determined by an Independent Expert.

 

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

 

3. Duties of the Advisor.  The Advisor undertakes to use its best efforts to present to the Company potential investment opportunities and to provide a continuing and suitable investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Directors.  In performance of this undertaking, subject to the supervision of the Directors and consistent with the provisions of the Prospectus, Articles of Incorporation and Bylaws of the Company, the Advisor shall, either directly or by engaging an Affiliate:

 

(a) serve as the Company’s investment and financial advisor and provide research and economic and statistical data in connection with the Company’s assets and investment policies;

 

(b) provide the daily management of the Company and perform and supervise the various administrative functions reasonably necessary for the management of the Company;

 

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

 

(d) consult with the officers and Directors of the Company and assist the Directors in the formulation and implementation of the Company’s financial policies, and, as necessary, furnish the Directors with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company; subject to the provisions of Paragraphs 3(g) and 4 hereof, (i) locate, analyze and select potential investments in Properties and other Permitted Investments, (ii) structure and negotiate the terms and conditions of transactions pursuant to which investment in Properties and other Permitted Investments; (iii) make investments in Properties and other Permitted Investments in compliance with the investment objectives and policies of the Company; (iv) arrange for financing and refinancing and make other changes in the asset or capital structure of, and dispose of, reinvest the proceeds from the sale of, or otherwise deal with the investments in, Properties and other Permitted Investments; and (v) enter into leases and service contracts for Company Property and, to the extent necessary, perform all other operational functions for the maintenance and administration of such Company Property;

 

 

	
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(e) provide the Directors with periodic reports regarding prospective investments in Properties and other Permitted Investments;

 

(f) obtain the prior approval of the Directors (including a majority of all Independent Directors) for any and all investments in Properties and other Permitted Investments;

 

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

 

(h) obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of investments or contemplated investments of the Company;

 

(i) from time to time, or at any time reasonably requested by the Directors, make reports to the Directors of its performance of services to the Company under this Agreement;

 

(j) provide the Company with all necessary cash management services;

 

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

 

(l) deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the investments in Properties and other Permitted Investments; and

 

(m) notify the Board of all proposed material transactions before they are completed.

 

4. Authority of Advisor.

 

(a) Pursuant to the terms of this Agreement (including the restrictions included in this Paragraph 4 and in Paragraph 7), and subject to the continuing and exclusive authority of the Directors over the management of the Company, the Directors hereby delegate to the Advisor the authority to (1) locate, analyze and select investment opportunities, (2) structure the terms and conditions of transactions pursuant to which investments will be made or acquired for the Company, (3) acquire Properties and other Permitted Investments in compliance with the investment objectives and policies of the Company, (4) arrange for financing or refinancing with respect to Properties and other Permitted Investments, (5) enter into leases and service contracts for the Company’s Property, and perform other property management services, (6) oversee non-affiliated property managers and other non-affiliated Persons who perform services for the Company; and (7) undertake accounting and other record-keeping functions at the Property level.

 

(b) Notwithstanding the foregoing, any investment in Properties or other Permitted Investments, including any acquisition of Property by the Company (as well as any financing acquired by the Company in connection with such acquisition), will require the prior approval of the Directors (including a majority of the Independent Directors).

 

 

	
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(c) If a transaction requires approval by the Independent Directors, the Advisor will deliver to the Independent Directors all documents required by them to properly evaluate the proposed investment in the Property or other Permitted Investments.

 

(d) The prior approval of a majority of the Independent Directors and a majority of the Directors not otherwise interested in the transaction will be required for each transaction with the Advisor or its Affiliates.

 

(e) The Directors may, at any time upon the giving of notice to the Advisor, modify or revoke the authority set forth in this Paragraph 4.  If and to the extent the Directors so modify or revoke the authority contained herein, the Advisor shall henceforth submit to the Directors for prior approval such proposed transactions involving investments which thereafter require prior approval, 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.

 

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 Directors may approve, provided that no funds shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render appropriate accountings of such collections and payments to the Directors and to the auditors of the Company.

 

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

 

7. Limitations on Activities.  Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would (a) adversely affect the status of the Company as a REIT, (b) subject the Company to regulation under the Investment Company Act of 1940, or (c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company or its Securities, or otherwise not be permitted by the Articles of Incorporation or Bylaws of the Company, except if such action shall be ordered by the Directors, in which case the Advisor shall notify promptly the Directors 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 Directors.  In such event the Advisor shall have no liability for acting in accordance with the specific instructions of the Directors so given. Notwithstanding the foregoing, the Advisor, its Directors, officers, employees and stockholders, and stockholders, Directors and officers of the Advisor’s Affiliates shall not be liable to the Company or to the Directors or Stockholders for any act or omission by the Advisor, its Directors, officers or employees, or stockholders, Directors or officers of the Advisor’s Affiliates except as provided in Paragraphs 19 and 20 of this Agreement.

 

 

	
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8. Relationship with Directors.  Directors, officers and employees of the Advisor or an Affiliate of the Advisor or any corporate parents of an Affiliate, or Directors, officers or stockholders of any director, officer or corporate parent of an Affiliate may serve as a Director and as officers of the Company, except that no director, officer or employee of the Advisor or its Affiliates who also is a Director or officer of the Company shall receive any compensation from the Company for serving as a Director or officer of the Company other than reasonable reimbursement for travel and related expenses incurred in attending meetings of the Directors of the Company.

 

9. Fees.

 

(a) Asset Management Fee.  The Company shall pay to the Advisor as compensation for the advisory services rendered to the Company under Paragraph 3 above, a monthly fee in an amount equal to 0.1% of the Company’s Average Invested Assets (the “Asset Management Fee”), as of the end of the preceding month.  The Asset Management Fee shall be payable monthly on the last day of such month, or the first business day following the last day of such month.  The Asset Management Fee, which will not exceed fees which are competitive for similar services in the same geographic area, may or may not be taken, in whole or in part as to any year, in the sole discretion of the Advisor.  All or any portion of the Asset Management Fee not taken as to any fiscal year shall be deferred without interest and may be taken in such other fiscal year as the Advisor shall determine.

 

(b) Acquisition Fees.  The Company shall pay the Advisor a fee in the amount equal 3.0% of Company’s Total Property Cost of its Properties, as Acquisition Fees.    The total of all Acquisition Fees and any Acquisition Expenses shall be limited to an amount equal to 6.0% of the Total Property Cost of its Properties.

 

(c) Financing Coordination Fee.  Other than with respect to any mortgage or other financing related to a property concurrent with its acquisition, if an Advisor or an Affiliate provides a substantial amount of the services (as determined by a majority of the Independent Directors) in connection with the post-acquisition financing or refinancing of any debt that the Company obtains relative to a Property, the Advisor or Affiliate shall receive a financing coordination fee equal to 1.0% of the amount of such financing.

 

(d) Property Management Fee.  If an Advisor or an Affiliate provides a substantial amount of the property management services (as determined by a majority of the Independent Directors) for the Company’s Properties, then the Advisor or Affiliate shall receive a property management fee equal to 1.5% of gross revenues from the properties managed.

 

(e) Leasing Commissions.  If an Advisor or an Affiliate provides a substantial amount of the services (as determined by a majority of the Independent Directors) in connection with the Company’s initial leasing of a Property or Properties to unaffiliated third parties, the Advisor or Affiliate shall receive leasing commissions equal to 6.0% of the rents due pursuant to such lease for the first ten years of the lease term; provided, however (i) if the term of the lease is less than ten years, such commission percentage will apply to the full term of the lease and (ii) any rents due under a renewal of a lease of an existing tenant upon expiration of the initial lease agreement (including any extensions provided for thereunder) shall accrue a commission of 3.0% in lieu of the aforementioned 6.0% commission.

 

 

	
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(f) Real Estate Commission.  If the Advisor or an Affiliate provides a substantial amount of the services (as determined by a majority of the Independent Directors) in connection with the Sale of one or more Assets, the Advisor or an Affiliate shall receive a Real Estate Commission equal to one-half of the brokerage commission paid with respect to such Assets; provided, however, (i) the amount so paid shall not exceed an amount equal to 3.0% of the contract price of such Assets and (ii) the amount so paid when added to the sums paid to unaffiliated parties in such capacity shall not exceed the lesser of (x) the Competitive Real Estate Commission and (y) 6.0% of the contract price of such Assets.

 

(g) Subordinated Participation Fee.

 

(i) Upon the occurrence of a liquidity event such as the refinancing of the underlying mortgage or the Sale of the Properties or parcels of Properties, the Advisor shall be entitled to the Subordinated Participation Fee which shall be forty percent (40%) of the proceeds therefrom after the Stockholders have received total Distributions that return to them a 6.5% annual, cumulative, non-compounded return on their Original Invested Capital plus their Stockholders’ 6.5% Return.

 

(ii) In the event this Agreement is terminated, whether under Paragraph 14 or Paragraph 15 below, the Advisor shall be entitled to the Subordinated Participation Fee as set forth below even if this Agreement is terminated prior to such time as the Stockholders have received total Distributions in an amount equal to 100% of Original Invested Capital plus an amount sufficient to pay the Stockholders’ 6.5% Return through the Termination Date.  If the Stockholders have not received total Distributions in an amount equal to 100% of Original Invested Capital plus the Stockholders’ 6.5% Return through the Termination Date, an appraisal of the Properties then owned by the Company shall be made.  If the Appraised Value of the Properties then owned by the Company plus total Distributions received prior to the Termination Date equals or is greater than 100% of Original Invested Capital plus an amount sufficient to pay the Stockholders’ 6.5% Return through the Termination Date, the Advisor shall be entitled to the Subordination Participation Fee based on such Appraised Value less the then outstanding balance on any mortgage debt on the underlying Properties plus a Subordinated Participation Fee on Properties or parcels of Properties previously sold but on which a Subordinated Participation Fee was not paid.

 

(h) Loans from Affiliates.  The Company may not borrow money from the Advisor or any Affiliate of the Advisor, unless a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in such transaction approve the transaction as being fair, competitive, and commercially reasonable and no less favorable to the Company than loans between unaffiliated parties under the same circumstances.

 

 

	
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10. Expenses.

 

(a) In addition to the compensation paid to the Advisor pursuant to Paragraph 9 hereof, the Company shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor in connection with the services it provides to the Company pursuant to this Agreement, including, but not limited to:

 

(i) the lesser of the Company’s Organizational and Offering Expenses or (together with any Organizational and Offering Expenses reimbursed to the Sponsor) 3.0% of the proceeds raised from the Offering,;

 

(ii) the Acquisition Expenses incurred in connection with the selection and acquisition of Properties or other Permitted Investments;

 

(iii) the actual cost of goods and materials used by the Company and obtained from entities not affiliated with the Advisor, other than Acquisition Expenses, including brokerage fees paid in connection with the purchase and sale of securities;

 

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

 

(v) taxes and assessments on income or Property and taxes as an expense of doing business;

 

(vi) costs associated with insurance required in connection with the business of the Company or by the Directors;

 

(vii) expenses of managing and operating Properties owned by the Company, whether payable to an Affiliate of the Company or a non-affiliated Person;

 

(viii) all expenses in connection with payments to the Directors and meetings of the Directors and Stockholders;

 

(ix) expenses associated with Listing or with the issuance and distribution of Shares and Securities, such as selling commissions and fees, advertising expenses, taxes, legal and accounting fees, and Listing and registration fees;

 

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

 

(xi) expenses of organizing, revising, amending, converting, modifying, or terminating the Company or the Articles of Incorporation;

 

(xii) expenses of 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;

 

 

	
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(xiii) expenses related to negotiating and servicing loans, Properties and other Permitted Investments;

 

(xiv) administrative service expenses (including personnel costs; provided, however, that no reimbursement shall be made for costs of personnel to the extent that such personnel perform services in transactions for which the Advisor receives a separate fee at the lesser of actual cost or 90% of the competitive rate charged by unaffiliated persons providing similar goods and services in the same geographic location); and

 

(xv) audit, accounting and legal fees.

 

(b) Expenses incurred by the Advisor on behalf of the Company and payable pursuant to this Paragraph 10 shall be reimbursed no less often than monthly to the Advisor.  The Advisor shall prepare a statement documenting the expenses of the Company during each quarter, and shall deliver such statement to the Company within 45 days after the end of each quarter.

 

11. Other Services.  Should the Directors request that the Advisor or any director, officer or employee thereof render services for the Company other than set forth in Paragraph 3, such services shall be separately compensated at such rates and in such amounts as are agreed by the Advisor and the Independent Directors of the Company, 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.

 

12. Other Activities of the Advisor.

 

(a) Nothing herein contained shall prevent the Advisor from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of any director, officer, employee, or stockholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association.  The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein.  The Advisor shall report to the Directors 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 partnership, corporation, firm, individual, trust or association.  The Advisor or its Affiliates shall promptly disclose to the Directors knowledge of such condition or circumstance.  If the Sponsor, 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, it shall be the duty of the Directors (including the Independent Directors) to adopt the method, if any, set forth in the Prospectus or another reasonable method by which properties are to be allocated to the competing investment entities and to use their best efforts to apply such method fairly to the Company.

 

 

	
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(b) The Advisor shall be required to use its best efforts to present a continuing and suitable investment program to the Company which is consistent with the investment policies and objectives of the Company, but neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to the Company even if the opportunity is of character which, if presented to the Company, could be taken by the Company.

 

(c) In the event that the Advisor or its Affiliates is presented with a potential investment which might be made by the Company and by another investment entity which the Advisor or its Affiliates advises or manages, the Advisor and its Affiliates shall consider the investment portfolio of each entity, cash flow of each entity, the effect of the acquisition on the diversification of each entity’s portfolio, rental payments during any renewal period, the estimated income tax effects of the purchase on each entity, the policies of each entity relating to leverage, the funds of each entity available for investment and the length of time such funds have been available for investment.  In the event that an investment opportunity becomes available which is suitable for both the Company and a public or private entity which the Advisor or its Affiliates are Affiliated, then the entity which has had the longest period of time elapse since it was offered an investment opportunity will first be offered the investment opportunity.  For purposes of this conflict resolution procedure, an investment opportunity will be considered “offered” to the Company when an opportunity is presented to the Board of Directors for its consideration.

 

13. Relationship of Advisor and Company.  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 or impose any liability as such on either of them.

 

14. Term; Termination of Agreement.  This Agreement shall continue in force for one year from the date of this Agreement, subject to an unlimited number of successive one-year renewals upon mutual consent of the parties.  It is the duty of the Directors to evaluate the performance of the Advisor annually before renewing the Agreement, and each such agreement shall have a term of no more than one year.

 

15. Termination by Either Party.  This Agreement shall be terminable by a majority of the Independent Directors, or the Advisor on 60 days written notice without Cause; provided, however, the Advisor shall be entitled to the value of its Subordinated Participation Fee as provided under Paragraph 9(g) above.  In the event of the termination of this Agreement, the Advisor will cooperate with the Company and take all reasonable steps requested to assist the Directors in making an orderly transition of the advisory function.

 

16. Assignment to an Affiliate.  This Agreement may be assigned by the Advisor to an Affiliate with the approval of a majority of the Directors (including a majority of the Independent Directors).  The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the 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 which is a successor to all of the assets, rights and obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.

 

 

	
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17. Subcontracts with Affiliates.  The Advisor may subcontract with an Affiliate for a portion of the services and duties to be performed under this Agreement without obtaining the approval of the Directors to the extent such services or duties are primarily administrative in nature.  The Advisor may further subcontract any rights to receive fees or other payments for such services or duties under this Agreement without obtaining the approval of the Directors.

 

18. Payments to and Duties of Advisor Upon Termination.

 

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

 

(b) Upon termination, the Advisor shall be entitled to payment of the Subordinated Participation Fee on the basis as described above in Paragraph 9(g).  The Advisor shall be entitled to receive all accrued but unpaid compensation and expense reimbursements in cash within 30 days of the Termination Date.

 

(c) The Advisor shall promptly upon termination:

 

(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 Directors 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 Directors;

 

(iii) deliver to the Directors all assets, including Properties and other Permitted Investments, and documents of the Company then in the custody of the Advisor; and

 

(iv) cooperate with the Company to provide an orderly management transition.

 

19. Indemnification by the Company.  The Company shall indemnify and hold harmless the Advisor and its Affiliates, including their respective officers, directors, partners and employees, from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys' fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance, subject to any limitations imposed by the laws of the State of Maryland or the Articles of Incorporation of the Company.  Notwithstanding the foregoing, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Paragraph 19 for any activity for which the Advisor shall be required to indemnify or hold harmless the Company pursuant to Paragraph 20.  Any indemnification of the Advisor may be made only out of the net assets of the Company and not from Stockholders.

 

 

	
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20. Indemnification by Advisor.  The Advisor shall indemnify and hold harmless the Company from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys' fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor's bad faith, fraud, misconduct, or negligence, but the Advisor shall not be held responsible for any action of the Board of Directors in following or declining to follow any advice or recommendation given by the Advisor.

 

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

 

	
To the Directors and to the Company:

	
Rich Uncles REIT, Inc.

3080 Bristol Street, Suite 550

Costa Mesa, CA 92626

Attn: Harold Hofer

 

 

	
To the Advisor:

	
Rich Uncles REIT Operator, LLC

3080 Bristol Street, Suite 550

Costa Mesa, CA 92626

Attn: Harold Hofer

 

Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Paragraph 21.

 

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

 

23. 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.

 

24. Construction.  The provisions of this Agreement shall be interpreted, construed and enforced in all respects in accordance with the laws of the State of Maryland applicable to contracts to be made and performed entirely in said state.

 

25. 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.

 

 

	
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26. Indulgences, Not Waivers.  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.

 

27. 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.

 

28. Headings Not to Affect Interpretation.  The headings of paragraphs and subparagraphs 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.

 

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

 

 

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

 

 

Rich Uncles REIT, Inc.

 

By:          _______________________________

Name:      _____, Independent  Director

 

Rich Uncles REIT Operator, LLC

 

By:          _______________________________

Name:      Harold Hofer, Manager

 

 

 

 

	
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