Document:

ex_412497.htm

Exhibit 10.8

 

 

 

 

ADVISORY AGREEMENT

 

BY AND BETWEEN

 

NEXPOINT HOMES TRUST, INC.

 

AND

 

NEXPOINT REAL ESTATE ADVISORS XI, L.P.

 

 

 

 

TABLE OF CONTENTS

 

	 	 	Page
	 	 	 
	
			1.

				
			Definitions

				
			1

			
	
			2.

				
			Appointment

				
			4

			
	
			3.

				
			Duties of the Adviser

				
			4

			
	
			4.

				
			Authority of Adviser

				
			7

			
	
			5.

				
			No Partnership or Joint Venture

				
			7

			
	
			6.

				
			Bank Accounts

				
			7

			
	
			7.

				
			Records; Access; Confidentiality

				
			7

			
	
			8.

				
			Limitations on Activities

				
			8

			
	
			9.

				
			Compensation

				
			8

			
	
			10.

				
			Expenses

				
			9

			
	
			11.

				
			Other Services

				
			9

			
	
			12.

				
			Other Activities of the Adviser

				
			9

			
	
			13.

				
			Term and Termination

				
			10

			
	
			14.

				
			Payments and Duties Upon Termination

				
			10

			
	
			15.

				
			Board Designees

				
			11

			
	
			16.

				
			Internalization

				
			11

			
	
			17.

				
			Limitation on Liability, Limitation of Liability, Exculpation and Indemnification by the Company and its Subsidiaries

				
			11

			
	
			18.

				
			Indemnification by the Adviser

				
			12

			
	
			19.

				
			Notices

				
			13

			
	
			20.

				
			Modification

				
			14

			
	
			21.

				
			Severability

				
			14

			
	
			22.

				
			Governing Law; Arbitration

				
			14

			
	
			23.

				
			Entire Agreement

				
			14

			
	
			24.

				
			No Waiver

				
			14

			
	
			25.

				
			Pronouns and Plurals

				
			14

			
	
			26.

				
			Headings

				
			14

			
	
			27.

				
			Execution in Counterparts

				
			14

			

 

i

 

 

ADVISORY AGREEMENT

 

THIS ADVISORY AGREEMENT (this “Agreement”), dated as of June 8, 2022, is entered into by and between NexPoint Homes Trust, Inc., a Maryland corporation (the “Company”) and NexPoint Real Estate Advisors XI, L.P., a Delaware limited partnership (the “Adviser”).

 

RECITALS

 

A.         The Company is a Maryland corporation created in accordance with the Maryland General Corporation Law and intends to elect to qualify as a REIT for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2022.

 

B.         The Company is a limited partner of NexPoint SFR Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”) and, as of the effective date of this Agreement, owns 54.9% of the outstanding partnership units of the Operating Partnership.

 

C.         The Company desires to avail itself of the experience, sources of information, advice, assistance and certain facilities of the Adviser and its Affiliates and to have the Adviser undertake the duties and responsibilities set forth in this Agreement, on behalf of and subject to, the supervision of the Board of Directors, all as provided in this Agreement.

 

D.         The Adviser is willing to render such services, subject to the supervision of the Board of Directors, on the terms and conditions set forth in this Agreement.

 

E.         The Board of Directors have approved this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1.    Definitions. The following terms shall have the meanings set forth in this Section 1 for purposes of this Agreement. Other terms are defined in the text of this Agreement.

 

“1940 Act” means the Investment Company Act of 1940, as amended.

 

“Advisory Fee” means an annual fee, payable monthly, in an amount equal to 0.75% of Consolidated Enterprise Value; provided, however, that when calculating Net Asset Value for Consolidated Enterprise Value for the Advisory Fee, Net Asset Value will exclude (i) the capital contributed by NexPoint and its Affiliates or the Manager to the Company and the Operating Partnership and (ii) the capital contributed by the management team of Manager as required by Section 10 of the Side Letter in connection with the sale of the Existing Portfolio (as defined in the Side Letter) to the Company or Operating Partnership. For the avoidance of doubt, contributions in connection with the sale of the Existing Portfolio to the Company or Operating Partnership by investors that are not the management team of the Manager or the Manager will be included in Net Asset Value for Consolidated Enterprise Value for the Advisory Fee.

 

“Affiliate” or “Affiliated” means with respect to any Person, (a) any Person directly or indirectly controlling, controlled by or under common control with such other Person, (b) any executive officer, director, trustee or general partner of such other Person, and (c) any legal entity for which such Person acts as an executive officer, director, trustee or general partner. For purposes of this definition, the terms “controls,” “is controlled by,” or “is under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity, whether through ownership or voting rights, by contract or otherwise.

 

“Articles of Incorporation” means the Articles of Amendment and Restatement of the Company, as hereafter amended and/or restated from time to time.

 

“Average Consolidated Enterprise Value” means the average of the Consolidated Enterprise Value at the end of each month (or partial month) (i) for which any fee under this Agreement is calculated or (ii) during the year for which any Expense reimbursement under this Agreement is calculated.

 

 

 

 

“Board of Directors” or “Board” means the Board of Directors of the Company.

 

“Bylaws” means the bylaws of the Company, as hereafter amended and/or restated from time to time.

 

“Capitalization Fee” means, for each Capitalization Transaction, a fee in an amount equal to 0.25% of such Capitalization Transaction, payable at the end of the month in which such Capitalization Transaction is completed.

 

“Capitalization Transaction” means a transaction in which the Company, the Operating Partnership or any of their respective subsidiaries receives equity or debt capital.

 

“Cause Event” means (a) a final judgment by any court or governmental body of competent jurisdiction not stayed or vacated within 30 days that the Adviser, any of its agents or any of its assignees has committed a felony or a material violation of applicable securities laws that has a material adverse effect on the business of the Company or the ability of the Adviser to perform its duties under the terms of this Agreement, (b) an order for relief in an involuntary bankruptcy case relating solely to the Adviser or the Adviser authorizing or filing a voluntary bankruptcy petition on its own behalf, (c) the dissolution of the Adviser, or (d) a determination that the Adviser has (i) committed fraud against the Company, (ii) misappropriated or embezzled funds of the Company, (iii) acted in a manner constituting bad faith, willful misconduct, gross negligence or reckless disregard in the performance of its duties under this Agreement, (iv) failed to act, where such failure to act constituted bad faith, willful misconduct, gross negligence or reckless disregard in the performance of its duties under this Agreement, or (v) defaulted in the performance or observance of any material term, condition or covenant contained in this Agreement and such default shall have continued for a period of 30 days after the Company had given written notice to the Adviser of such default; provided, however, that if any of the actions or omissions described in this clause (d) are caused by an employee and/or officer of the Adviser or one of its Affiliates and the Adviser takes all necessary action against such person and cures the damage caused by such actions or omissions within 30 days of such determination, then such event shall not constitute a Cause Event.

 

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

 

“Consolidated Enterprise Value” means (x) the aggregate number of outstanding Shares and OP Units (excluding OP Units owned by the Company) multiplied by the then-current Net Asset Value plus (y) the then-current outstanding debt of the Company and the Operating Partnership and their subsidiaries plus the then-current redemption value of any outstanding preferred equity of the Company and the Operating Partnership (excluding preferred equity of the Operating Partnership owned by the Company).

 

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

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“GAAP” means the U.S. generally accepted accounting principles.

 

“Independent Director” means a Director who qualifies as an “independent director” under the NYSE listing rules.

 

“Internalization Fee” means an internalization fee equal to four times the sum of the annualized Advisory Fee earned by the Advisor for the fiscal quarter ending immediately preceding the date the Company and the Adviser agree to the Internalization; provided, however, if this Agreement is terminated prior to the end of the first fiscal quarter ending after of the date of this Agreement, the Advisory Fee will be annualized based on the Advisory Fee earned by the Adviser during the period the Agreement was in effect; provided, further, the Internalization Fee shall be capped at 5.0% of the Consolidated Enterprise Value.

 

 

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“Investment Committee” means the investment committee of the Operating Partnership.

 

“Investments” means any investments by the Company or its subsidiaries in Real Estate Assets or any other asset.

 

“Joint Ventures” means any joint venture or partnership arrangements (other than between the Company and the Operating Partnership) in which the Company or any of its subsidiaries is a co-venturer, member or partner, which are established to own Investments.

 

“Loans” means any indebtedness or obligations in respect of borrowed money or evidenced by bonds, notes, debentures, deeds of trust, letters of credit or similar instruments, including mortgages and mezzanine loans.

 

“Management Agreement” means that certain Management Agreement, dated June 8, 2022, by and among the Operating Partnership and the Manager as may be amended, restated, modified, supplemented or replaced from time to time.

 

"Manager" means HomeSource Operations LLC, a Delaware limited liability company.

 

“Net Asset Value” means the net asset value of the Company and the Operating Partnership to be calculated by Green Street Advisors (“GSA”) or another reputable third party on a quarterly or monthly basis, but no less frequently than quarterly, using a methodology developed in conjunction with GSA (or other firm) and the Company management team to be approved by the Board of Directors and the Investment Committee of the Operating Partnership.

 

“NexPoint” means NexPoint Advisors, L.P., a Delaware limited partnership.

 

“NYSE” means the New York Stock Exchange.

 

“Offering” means any public or private offering of equity or debt securities of the Company that is consummated as of or at a time following the date of this Agreement, excluding Shares (or securities convertible or exchangeable for Shares) offered under any employee benefit plan of the Company or its Affiliates.

 

“Offering Expenses” means any and all expenses (other than underwriters’ discounts) paid or to be paid by the Company in connection with an Offering, including, without limitation, the Company’s legal, accounting, printing, mailing and filing fees and other documented offering expenses.

 

“Operating Expenses” means all out-of-pocket expenses of the Adviser in performing services for the Company, including the expenses incurred by the Adviser in connection with any provision by the Adviser of legal, accounting, financial and due diligence services performed by the Adviser that outside professionals or outside consultants would otherwise perform. Operating Expenses also include compensation expenses under any Company long term incentive plan and the Company’s pro rata share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Adviser required for the Company’s operations. Operating Expenses do not include expenses for the administrative services described on Exhibit A to this Agreement.

 

“OP Units” means any class of common units of limited partnership interests in the Operating Partnership.

 

“Person” means an individual, corporation, partnership, joint venture, association, company (whether of limited liability or otherwise), trust, bank or other entity, or government or any agency or political subdivision of a government.“

 

Real Estate Assets” means any investment by the Company or its subsidiaries (including, without limitation, reserves for capital expenditures) in unimproved and improved Real Property (including, without limitation, fee or leasehold interests, options and leases) either directly, through a direct or indirect subsidiary of the Company or through a Joint Venture.

 

3

 

 

“Real Property” means real property owned from time to time by the Company, either directly, through a direct or indirect subsidiary of the Company or through a Joint Venture, which consists of (a) land only, (b) land, including the single-family and multi-family residences located thereon, (c) single-family and multi-family residences only, (d) real estate-related securities (including preferred stock), mortgage, bridge or mezzanine loans, or (e) such Investments the Board or the Adviser designate as Real Property to the extent such Investments could be classified as Real Property.

 

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

 

“SEC” means the Securities and Exchange Commission.

 

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

 

“Shares” means the shares of the Company’s common stock, par value $0.01 per share.

 

“Side Letter” means that certain side letter, dated June 8, 2022, by and among the Company, the Operating Partnership, the Manager and other parties thereto, as amended restated and/or supplemented from time to time.

 

“Stockholders” means the registered holders of the Shares.

 

“Termination Fee” means a termination fee equal to four times the sum of the annualized Advisory Fee earned by the Adviser for the fiscal quarter ending immediately preceding the termination date of the Agreement; provided, however, if this Agreement is terminated prior to the end of the first fiscal quarter ending after the date of this Agreement, the Advisory Fee will be annualized based on the Advisory Fee earned by the Adviser during the period the Agreement was in effect.

 

“Value Per Share and OP Unit” means the most recent price paid for a Share in connection with an Offering or, if there is no current Offering, the then-current Net Asset Value per Share and OP Unit.

 

2.    Appointment. The Company hereby appoints the Adviser to serve as its adviser to perform the services set forth herein on the terms and conditions set forth in this Agreement, and the Adviser hereby accepts such appointment. Except as otherwise provided in this Agreement, the Adviser hereby agrees to use its commercially reasonable efforts to perform each of the duties set forth herein. The appointment of the Adviser shall be exclusive to the Adviser, except to the extent that the Adviser elects, in its sole and absolute discretion, subject to the terms of this Agreement, to cause the duties of the Adviser as set forth herein to be provided by third parties and/or its Affiliates.

 

3.    Duties of the Adviser. The Adviser, in its capacity as manager of the assets and the day-to-day operations of the Company, at all times will be subject to the supervision of the Company’s Board of Directors and will have only such functions and authority as the Company may delegate to it including, without limitation, the functions and authority identified herein and delegated to the Adviser hereby. The Adviser will be responsible for the day-to-day operations of the Company and will perform (or cause to be performed) such services and activities relating to the assets and operations of the Company as may be appropriate, including, without limitation:

 

(a)    serve as the Company’s investment and financial advisor;

 

(b)    vote on behalf of the Company all equity securities of the Operating Partnership and any other equity securities owned, directly or indirectly, by the Company;

 

(c)    provide the daily management for the Company and perform and supervise the various administrative functions necessary for the day-to-day management of the operations of the Company, including the administrative services described on Exhibit A to this Agreement;

 

4

 

 

(d)    investigate, select, and, on behalf of the Company, engage and conduct business with such Persons as the Adviser 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, real estate management companies, real estate operating companies, securities investment advisors, mortgagors, the registrar and the transfer agent and any and all agents for any of the foregoing, including Affiliates of the Adviser, and Persons acting in any other capacity deemed by the Adviser necessary or desirable for the performance of any of the foregoing services, including, but not limited to, entering into contracts in the name of the Company with any of the foregoing;

 

(e)    consult with the officers and Directors of the Company and assist the Directors in the formulation and implementation of the Company’s (including, as it relates to any of its subsidiaries) financial policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company (including, as it relates to any of its subsidiaries) and in connection with any borrowings proposed to be undertaken by the Company and its subsidiaries;

 

(f)    subject to the provisions of Section 4 hereof, (i) participate in formulating an investment strategy and asset allocation framework, (ii) locate, analyze and select potential Investments, (iii) structure and negotiate the terms and conditions of transactions pursuant to which acquisitions and dispositions of Investments will be made, (iv) research, identify, review and recommend acquisitions and dispositions of Investments to the Board and make Investments on behalf of the Company in compliance with the investment objectives and policies of the Company, (v) negotiate the terms of and 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, Investments, (vi) negotiate and enter into leases and service contracts for Real Estate Assets and, to the extent necessary, perform all other operational functions for the maintenance and administration of such Real Estate Assets, (vii) actively oversee and manage Investments for purposes of meeting the Company’s investment objectives and reviewing and analyzing financial information for each of the Investments and the overall portfolio, (viii) select Joint Venture partners, structure and negotiate corresponding agreements and oversee and monitor these relationships, (ix) engage, oversee, supervise and evaluate property managers who perform services for the Company, (x) engage, oversee, supervise and evaluate Persons with whom the Adviser contracts to perform certain of the services required to be performed under this Agreement, (xi) manage accounting and other record keeping functions for the Company, including reviewing and analyzing the capital and operating budgets for the Real Estate Assets and generating an annual budget for the Company, and if requested, its subsidiaries, and (xii) recommend various liquidity events to the Board when appropriate;

 

(g)    upon request, provide the Board with periodic reports regarding prospective Investments that are actively being considered by the Investment Committee of the Operating Partnership or by the Adviser;

 

(h)    negotiate the terms of and make investments in, and dispositions of, Investments within the discretionary limits and authority as granted by the Board;

 

(i)    within the discretionary limits and authority as granted by the Board, negotiate on behalf of the Company with banks or other lenders for Loans to be made to or guaranteed by the Company, and negotiate on behalf of the Company with investment banking firms and broker-dealers or negotiate private sales of Shares or obtain Loans for the Company, but in no event in such a manner so that the Adviser shall be acting as broker-dealer or underwriter; provided, further, that any fees and costs payable to third parties incurred by the Adviser in connection with the foregoing shall be the responsibility of the Company or, in the case of any guarantee of any obligations of the Operating Partnership, the Operating Partnership;

 

(j)    at least quarterly, and at any other time reasonably requested by the Board, obtain reports (which may, but are not required to, be prepared by the Adviser or its Affiliates), where appropriate, concerning the value of Investments or contemplated Investments of the Company or the Investment Committee of the Operating Partnership;

 

5

 

 

(k)    at least quarterly, and at any other time reasonably requested by the Board, make reports to the Board of its performance of services to the Company under this Agreement (including reports with respect to potential conflicts of interest involving the Adviser or any of its Affiliates), the composition and characteristics of the Company’s portfolio, and compliance with the Company’s investment guidelines and other policies approved from time to time by the Board;

 

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

 

(m)    deliver to, or maintain on behalf of, the Company copies of all appraisals obtained in connection with the Investments in any Real Estate Assets as may be required to be obtained by the Board or the Investment Committee of the Operating Partnership;

 

(n)    notify the Board of all proposed transactions outside of the Adviser’s delegated authority before they are completed and obtain Board approval of same;

 

(o)    negotiate and effect any interests in Investments as may be approved by the Board;

 

(p)    perform investor-relations and Stockholder communications functions for the Company;

 

(q)    render such services as may be reasonably determined by the Board of Directors consistent with the terms and conditions herein;

 

(r)    maintain the Company’s accounting and other records and assist the Company in filing all reports required to be filed by it with the SEC, the Internal Revenue Service and other regulatory agencies, to the extent applicable;

 

(s)    advise the Company regarding the maintenance of the Company’s qualification as a REIT and monitor the Company’s compliance with the various REIT qualification requirements and other rules set forth in the Code and any applicable treasury regulations promulgated under the Code, as amended from time to time, and use its commercially reasonable efforts to cause the Company to qualify as a REIT and maintain its qualification as a REIT for U.S. federal income tax purposes;

 

(t)    advise the Company regarding the maintenance of its exemptions from the status of an investment company required to register under the 1940 Act, and monitor compliance with the requirements for maintaining such exemptions and using commercially reasonable efforts to cause it to maintain such exemptions from such status;

 

(u)    assist the Company in qualifying to do business in all applicable jurisdictions in which the Company or its subsidiaries do business, and ensure that the Company and its subsidiaries obtain and maintain all applicable licenses;

 

(v)    assist the Company in complying with all regulatory requirements applicable to them with respect to their business activities, including preparing or causing to be prepared all financial statements required under applicable regulations and contractual undertakings and all reports and documents, if any, required under the Exchange Act or the Securities Act;

 

(w)    if requested by the Company, provide, or cause another qualified third party to provide, such internal audit, compliance and control services as may be required for the Company and its subsidiaries to comply with applicable law (including the Securities Act and the Exchange Act), regulation (including SEC regulations), and as otherwise requested by the Board;

 

(x)    handle and resolve on behalf of the Company and, if requested, its subsidiaries all routine claims, disputes or controversies, including all routine litigation, arbitration, settlement or other proceedings or negotiations, in which the Company or its subsidiaries may be involved or to which they may become subject, subject to such limitations or parameters as may be imposed from time to time by the Board;

 

(y)    perform and do all things necessary on behalf of the Company in its role as the tax matter partner of the Operating Partnership;

 

6

 

 

(z)    elect to and exercise any call or similar rights that are in favor of the Company or its subsidiaries, including the call rights set forth in the Side Letter;

 

(aa)     designate the two members of the Investment Committee of the Operating Partnership that the Company is entitled to appoint pursuant to the terms of the Agreement of Limited Partnership of the Operating Partnership, as the same is in effect from time to time;

 

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

 

(cc)     use commercially reasonable efforts to cause the Company and its subsidiaries to comply with all applicable laws.

 

Notwithstanding the foregoing, the Adviser may delegate any of the foregoing duties to any Person so long as the Adviser remains responsible for the performance of the duties set forth in this Section 3; provided, however, that the delegation by the Adviser of any of the foregoing duties to another Person shall not result in an increased Advisory Fee or additional expenses payable by the Company hereunder.

 

4.    Authority of Adviser.

 

(a)    Pursuant to the terms of this Agreement (including the restrictions included in this Section 4 and in Section 8), and subject to the continuing and exclusive authority of the Board over the management of the Company, the Company, acting on the authority of the Board of Directors, hereby delegates to the Adviser the authority to perform the services described in Section 3.

 

(b)    For the period and on the terms and conditions set forth in this Agreement, the Company and its subsidiaries hereby constitute, appoint and authorize the Adviser as its true and lawful agent and attorney-in-fact, in its name, place and stead, to negotiate, execute, deliver and enter into agreements, instruments and authorizations on their behalf, on such terms and conditions as the Adviser, acting in its sole and absolute discretion, deems necessary or appropriate (subject to any limitations imposed by the Board). This power of attorney is deemed to be coupled with an interest.

 

5.    No Partnership or Joint Venture. The parties to this Agreement are not partners or joint venturers with each other and nothing herein shall be construed to make them partners or joint venturers or impose any liability as such on either of them.

 

6.    Bank Accounts. The Adviser may establish and maintain one or more bank accounts in its own name for the account of the Company and any of its subsidiaries or in the name of the Company and its subsidiaries 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 or its subsidiaries, consistent with the authority granted under Section 4 and in such other circumstances as the Board may approve, provided that no funds shall be commingled with the funds of the Adviser; and the Adviser shall upon request by the Board render appropriate accountings of such collections and payments to the Board and to the auditors of the Company.

 

7.    Records; Access; Confidentiality. The Adviser shall maintain appropriate books of accounts and 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 and from time to time. The Adviser shall at all reasonable times have access to the books and records of the Company and its subsidiaries. The Adviser shall keep confidential any and all information obtained in connection with the services rendered under this Agreement and shall not disclose any such information (or use the same except in furtherance of its duties under this Agreement) to unaffiliated third parties except (a) with the prior written consent of the Board, (b) to legal counsel, accountants or other professional advisors or consultants engaged by the Company, (c) to appraisers, financing sources and others in the ordinary course of the Company’s business, (d) to governmental officials having jurisdiction over the Company and its subsidiaries), (e) in connection with any governmental or regulatory filings of the Company or its subsidiaries, or disclosure or presentations to Company investors, (f) as required by law or legal process to which the Adviser or any Person to whom disclosure is permitted hereunder is a party, (g) to the Manager or members of the Operating Partnership’s Investment Committee, or (h) to the extent such information is otherwise publicly available through the actions of a Person other than the Adviser not resulting from the Adviser’s violation of this Section 7. The confidentiality provisions of this Section 7 shall survive for a period of one year after the expiration or earlier termination of this Agreement.

 

7

 

 

8.    Limitations on Activities. Notwithstanding anything herein to the contrary, the Adviser shall not intentionally or with gross negligence, reckless disregard or bad faith take any action that, would (a) adversely affect the maintenance of the Company’s qualification as a REIT under the Code, unless the Board has determined that the maintenance of the Company’s REIT qualification is not in the best interests of the Company and its Stockholders, (b) subject the Company to regulation under the 1940 Act, or (c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company or its Shares, or otherwise not be permitted by the Articles of Incorporation or Bylaws, except if such action shall be ordered by the Board, in which case the Adviser shall notify promptly the Board of the Adviser’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event, the Adviser shall have no liability for acting in accordance with the specific instructions of the Board so given. The Adviser shall comply in all material respects with all applicable law and regulations.

 

9.    Compensation.

 

(a)    During the term hereof, as the same may be extended from time to time, the Company shall pay the Adviser the Advisory Fee. The Adviser shall compute each installment of the Advisory Fee as promptly as possible after the end of the month with respect to which such installment is payable. The accrued fees will be payable monthly as promptly as possible after the end of each month during which this Agreement is in effect. If requested by the Board, a copy of the computations made by the Adviser to calculate such installment shall thereafter, for informational purposes only, promptly be delivered to the Board. The Advisory Fee shall be paid in cash unless the Adviser elects, in its sole discretion, to receive all or a portion of the Advisory Fee in Shares or OP Units; provided, that such election to receive all or a portion of the fee in Shares or OP Units shall be made by notice to the Board (the “Election Notice”) at the time the Adviser delivers to the Board the computation of the Advisory Fee for such month. To the extent that the Adviser elects to receive Shares or OP Units in payment of all or a portion of the Advisory Fee for any particular month, the number of Shares or OP Units payable to the Adviser for such month shall equal (i) the dollar amount of the portion of the monthly installment of the Advisory Fee payable in Shares or OP Units (as set forth in the Election Notice) divided by (ii) the Value Per Share and OP Unit. The Advisory Fee shall be payable independent of the performance of the Company or the Investments. The Adviser’s ability to receive Shares or OP Units in payment of all or a portion of the Advisory Fee due to the Adviser under this Agreement shall be subject to complying with all U.S. federal and state securities laws.

 

(b)    During the term hereof, as the same may be extended from time to time, the Company shall pay the Adviser the Capitalization Fee for each Capitalization Transaction. The Adviser shall compute each Capitalization Fee as promptly as possible after the closing of the Capitalization Transaction with respect to which such Capitalization Fee is payable. If requested by the Board, a copy of the computations made by the Adviser to calculate such Capitalization Fee shall thereafter, for informational purposes only, promptly be delivered to the Board. The Capitalization Fee shall be paid in cash unless the Adviser elects, in its sole discretion, to receive all or a portion of the Capitalization Fee in Shares or OP Units; provided, that such election to receive all or a portion of the Capitalization Fee in Shares or OP Units shall be made by an Election Notice to the Board at the time the Adviser delivers to the Board the computation of the Capitalization Fee for such transaction. To the extent that the Adviser elects to receive Shares or OP Units in payment of all or a portion of the Capitalization Fee for any particular Capitalization Transaction, the number of Shares or OP Units payable to the Adviser for such Capitalization Transaction shall equal (i) the dollar amount of the Capitalization Fee payable in Shares or OP Units (as set forth in the Election Notice) divided by (ii) the Value Per Share and OP Unit. The Adviser’s ability to receive Shares or OP Units in payment of all or a portion of the Capitalization Fee due to the Adviser under this Agreement shall be subject to complying with all U.S. federal and state securities laws.

 

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(c)    The Adviser may waive a portion of its fees. If this Agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for such month shall be computed in a manner consistent with the calculation of the fees payable on a monthly basis.

 

(d)    In addition to the fees described herein, the Company will adopt a long term incentive plan, which will provide for awards to certain employees of the Adviser and other participants.

 

10.    Expenses.

 

(a)    In addition to the compensation paid to the Adviser pursuant to Section 9, the Company shall pay directly or reimburse the Adviser for all of the documented Operating Expenses and Offering Expenses (together, “Expenses”) paid or incurred by the Adviser or its Affiliates in connection with the services it provides to the Company and its subsidiaries pursuant to this Agreement. Any Expenses payable by the Company or reimbursable to the Adviser pursuant to this Agreement shall not be in amounts greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s length basis. Reimbursement of Operating Expenses under this Section 10, plus Advisory Fees under Section 9, may not exceed 1.5% of the Average Consolidated Enterprise Value for any calendar year or portion thereof; provided, however, that this limitation will not apply to legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation, an initial public offering of equity securities of the Company, an Internalization, mergers and acquisitions and other events outside the Company’s ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of Real Estate Assets.

 

(b)    The Adviser shall prepare a statement documenting all Expenses incurred during each month, and shall deliver such statement to the Company within 15 business days after the end of each month. Expenses incurred by the Adviser on behalf of the Company and its subsidiaries and payable pursuant to this Section 10 shall be reimbursed no later than the 15th business day immediately following the date of delivery of such statement of Expenses to the Company.

 

11.    Other Services. Should the Board request that the Adviser or any director, officer or employee thereof render services for the Company and its subsidiaries other than set forth in Section 3, such services shall be separately compensated at such customary rates and in such customary amounts as are agreed upon by the Adviser and the Board, including a majority of the Independent Directors, 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 Adviser. Except as set forth in this Section 12, nothing herein contained shall prevent the Adviser or any of its Affiliates from engaging in or earning fees from 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 NexPoint or its Affiliates; nor shall this Agreement limit or restrict the right of any director, officer, member, partner, employee, or stockholder of the Adviser or its Affiliates to engage in or earn fees from any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association and earn fees for rendering such services; provided, however, that the Adviser must devote sufficient resources to the Company’s business to discharge its obligations to the Company under this Agreement. The Adviser may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein, and earn fees for rendering such advice and service. Specifically, it is contemplated that the Company may enter into Joint Ventures or other similar co-investment arrangements with certain Persons, and pursuant to the agreements governing such Joint Ventures or arrangements, the Adviser may be engaged to provide advice and service to such Persons, in which case the Adviser will earn fees for rendering such advice and service.

 

The Board acknowledges that the Adviser and its Affiliates are subject to various conflicts of interest. The Adviser shall report to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or is reasonably likely to create a conflict of interest between the Adviser’s obligations to the Company and its obligations to or its interest in any other partnership, corporation, firm, individual, trust or association.

 

9

 

 

13.    Term and Termination.

 

(a)    Duration. This Agreement shall become effective on the date first set forth above. Unless terminated as herein provided, this Agreement shall remain in full force and effect until the date that is three years after the effective date of this Agreement (the “Initial Term”). Subsequent to the Initial Term, this Agreement shall be deemed to be automatically renewed for successive additional one-year periods (an “Automatic Renewal Term”), unless the Company or the Adviser elects not to renew this Agreement in accordance with Section 13(c) below.

 

(b)    Amendment. No provision of this Agreement may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the amendment, waiver, discharge or termination is sought. Any amendment of this Agreement shall be approved by either (i) the Company’s Board of Directors or (ii) a vote of the Company’s Stockholders.

 

(c)    Termination. Notwithstanding any other provision of this Agreement to the contrary, (i) upon written notice given 180 days’ prior to the expiration of the Initial Term or any Automatic Renewal Term to the Adviser, the Company may, without cause, in connection with the expiration of the Initial Term or the then-current Automatic Renewal Term, decline to renew this Agreement, whereupon this Agreement shall not be renewed and extended and this Agreement shall terminate effective on the anniversary date of this Agreement next following the delivery of such notice, (ii) no later than 180 days prior to the expiration of the Initial Term or the then-current Automatic Renewal Term, the Adviser may deliver written notice to the Company informing it of the Adviser’s intention to decline to renew this Agreement, whereupon this Agreement shall not be renewed and extended and this Agreement shall terminate effective on the anniversary date of this Agreement next following the delivery of such notice, (iii) the Company may terminate this Agreement upon the occurrence of a Cause Event by giving written notice to the Adviser of the occurrence of a Cause Event, whereupon this Agreement shall terminate 30 days after delivery of such written notice, (iv) the Adviser may terminate this Agreement by giving written notice to the Company in the event that the Company shall default in the performance or observance of any material term, condition or covenant contained in this Agreement and such default shall have continued for a period of 30 days before the Adviser had given written notice to the Company of such default, whereupon this Agreement shall terminate 30 days after delivery of such written notice, (v) the Adviser may terminate this Agreement by giving written notice to the Company in the event that any of the Adviser Designees are not elected or appointed to the Board as set forth in Section 15, whereupon this Agreement shall terminate 30 days after delivery of such written notice and (vi) this Agreement will automatically terminate on the Internalization Closing.

 

14.    Payments and Duties Upon Termination.

 

(a)    Amounts Owed. The Company shall pay the Adviser the Termination Fee before or on the last day of the Initial Term, the Automatic Renewal Term or the end of the 30-day period, as the case may be, provided, that the Company is not required to pay the Adviser the Termination Fee if this Agreement is terminated by the Company as a result of a Cause Event.

 

(b)    Adviser’s Duties. The Adviser shall promptly upon termination of this Agreement:

 

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

 

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

 

10

 

 

(iii)    deliver to the Board all assets, including all Investments, and documents of the Company and its subsidiaries then in the custody of the Adviser; and

 

(iv)    reasonably cooperate with the Company and its subsidiaries, at the Company’s expense, to provide an orderly management transition.

 

15.    Board Designees. So long as this Agreement is in effect, (a) the Adviser will have the right to designate two individuals (the “Adviser Designees”) that (i) on the date hereof, the Board will appoint to fill a vacancy on the Board and (ii) at each applicable annual meeting of stockholders or special meeting of stockholders at which directors are to be elected, is nominated for election (or re-election) to the Board such that, if elected, there shall be two Adviser Designees serving on the Board, and the Company will take all reasonably necessary action to nominate and include the Adviser Designees in the slate of nominees recommended by the Board for election as directors at each applicable annual meeting of stockholders or special meeting of stockholders at which directors are to be elected, including, without limitation, at every adjournment or postponement thereof, or in a written consent of stockholders relating to the election of directors, and the Company will recommend such individual be elected as a director and will solicit proxies or consents in favor thereof. In the event that a vacancy on the Board is created at any time by the death, disability, retirement, resignation or removal of an Adviser Designee, the Company will take all reasonably necessary action (whether by Board or stockholder action) to cause the vacancy created thereby to be filled as soon as reasonably practicable by a new designee of the Adviser.

 

16.    Internalization. At any time at which the Company and the Adviser mutually agree to internalize the Adviser (the “Internalization”), pursuant to which the Company will purchase all, but not less than all, of the outstanding and issued partnership interests of the Adviser (the "Adviser Equity") from the Adviser’s general partner, NexPoint Real Estate Advisors GP, LLC (the “Adviser GP”), and its limited partners (together with the Adviser GP, the “Equity Holders”), the purchase price for the Adviser Equity shall be equal to the Internalization Fee. At the closing of the Internalization (the "Internalization Closing"), the Company shall pay the Internalization Fee to the Equity Holders in Shares. Each of the Equity Holders’ ability to receive Shares in payment of the Internalization Fee shall be subject to the following: (i) the ownership by the Equity Holder of Shares shall not violate the ownership limits set forth in the Articles of Incorporation or otherwise raise a material risk to the status of the Company as a REIT, after giving effect to any exception from such limit that the Board may grant to the Equity Holder; and (ii) the Company’s issuance of Shares to the Equity Holder shall comply with all applicable restrictions under the U.S. federal securities laws. If the Equity Holder is unable to receive all or a portion of the Internalization Fee in Shares due to the limitations set forth in the preceding sentence, the Company shall pay the Internalization Fee or such portion of the Internalization Fee to such Equity Holder in cash. At the Internalization Closing, the Equity Holders shall transfer the Adviser Equity, free and clear of any lien or encumbrance, and shall deliver to the Company certificates evidencing the Adviser Equity, duly endorsed in blank and accompanied by a duly executed instrument of assignment separate from the certificate, together with any other documentation reasonably requested by the Company to evidence the transfer. For the avoidance of doubt, if the Internalization occurs pursuant to this Section 16, the Adviser shall not be entitled to the Termination Fee provided under Section 14.

 

17.    Limitation of Liability, Exculpation and Indemnification by the Company and its Subsidiaries.

 

(a)    Whether or not expressly provided in this Agreement, every provision of this Agreement relating to the conduct or affecting the liability of or affording protection to the Adviser or any of its respective Affiliates and their respective partners, members, officers, directors, employees and agents (including parties acting as agents for the execution of transactions) (each, a “Covered Person” and collectively, “Covered Persons”) shall be subject to the provisions of this Section 17.

 

11

 

 

(b)    To the fullest extent permitted by law, no Covered Person shall be liable to the Company and its subsidiaries for any act or omission (including but not limited to (i) any act or omission by any Covered Person in connection with the conduct of the business of the Company or its subsidiaries, that is determined by such Covered Person in good faith to be in or not opposed to the best interests of the Company or its subsidiaries, (ii) any act or omission by any Covered Person based on the suggestions of any professional advisor of the Company or its subsidiaries whom such Covered Person believes is authorized to make such suggestions on behalf of the Company or its subsidiaries, (iii) any act or omission by the Company or its subsidiaries, or (iv) any mistake, negligence, misconduct or bad faith of any broker or other agent of the Company or its subsidiaries selected by the Covered Person with reasonable care), unless any such act or omission by such Covered Person constitutes bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of its duties (as determined by a non-appealable judgment of a court or arbitration proceeding of competent jurisdiction).

 

(c)    A Covered Person may consult with legal counsel or accountants selected by such Covered Person and any act or omission by such Covered Person on behalf of the Company or its subsidiaries or in furtherance of the business of the Company or its subsidiaries in good faith in reliance on and in accordance with the advice of such counsel or accountants shall be full justification for the act or omission, and such Covered Person shall be fully protected in so acting or omitting to act if the counsel or accountants were selected with reasonable care.

 

(d)    To the fullest extent permitted by law, the Company or its applicable subsidiaries shall indemnify and held harmless Covered Persons, from and against any and all claims, liabilities, damages, losses, costs and expenses, including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and expenses of investigating or defending against any claim or alleged claim, of any nature whatsoever, known or unknown, liquidated or unliquidated, that are incurred by any Covered Person and arise out of or in connection with the business or investments of the Company or its subsidiaries, or the performance by the Covered Person of its responsibilities hereunder, provided that the Covered Person shall not be entitled to indemnification hereunder to the extent the Covered Person’s conduct constitutes bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of its duties (as determined by a non-appealable judgment of a court or arbitration proceeding of competent jurisdiction). The termination of any proceeding by settlement, judgment, order or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the Covered Person’s conduct constituted bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of its duties.

 

(e)    Expenses incurred by a Covered Person in defense or settlement of any claim that shall be subject to a right of indemnification hereunder, shall be advanced by the Company or its applicable subsidiaries prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the Covered Person to repay the amount advanced to the extent that it shall be determined ultimately that the Covered Person is not entitled to be indemnified hereunder.

 

(f)    The right of any Covered Person to the indemnification provided herein shall be cumulative of, and in addition to, any and all rights to which the Covered Person may otherwise be entitled by contract or as a matter of law or equity and shall be extended to the Covered Person’s successors, assigns and legal representatives.

 

(g)    The provisions of this Section 17 are expressly intended to confer benefits upon Covered Persons and such provisions shall remain operative and in full force and effect regardless of the expiration or any termination of this Agreement.

 

(h)    No Covered Person shall be liable hereunder for any settlement of any action or claim effected without its written consent thereto.

 

18.    Indemnification by the Adviser.

 

(a)    The Adviser shall indemnify and hold harmless the Company from all claims, liabilities, damages, losses, costs and expenses, including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties and legal or other costs and expenses of investigating or defending against any claim or alleged claim, of any nature whatsoever, known or unknown, liquidated or unliquidated, that are incurred by reason of the Adviser’s bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of its duties; provided, however, that the Adviser shall not be held responsible for any action of the Board in following or declining to follow any written advice or written recommendation given by the Adviser.

 

12

 

 

(b)    Notwithstanding anything in this Agreement to the contrary, the aggregate maximum amount that the Adviser may be liable to the Company pursuant to this Agreement shall, to the extent not prohibited by law, never exceed the amount of the Advisory Fees received by the Adviser under this Agreement prior to the date that the acts or omissions giving rise to a claim for indemnification or liability shall have occurred. In no event shall the Adviser be liable for special, exemplary, punitive, indirect, or consequential loss, or damage of any kind whatsoever, including without limitation lost profits. The foregoing limitations shall not apply to the extent such damages are determined in a final binding non-appealable court or arbitration proceeding to result from the bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of its duties of the Adviser.

 

(c)    The provisions of this Section 18 are expressly intended to confer benefits upon the Company and such provisions shall remain operative and in full force and effect regardless of the expiration or any termination of this Agreement.

 

19.    Notices. All notices or other communications required or permitted by this Agreement shall be in writing and shall be deemed to have been duly received (a) if given by electronic mail transmitted delivery receipt requested, upon receipt of a delivery receipt, (b) if given by certified or registered mail, return receipt requested, postage prepaid, three business days after being deposited in the U.S. mails and (c) if given by courier or other means, when received or personally delivered, and, in any such case, addressed as follows:

 

	 To the Company:	
			NexPoint Homes Trust, Inc.

			300 Crescent Court

			Suite 700

			Dallas, Texas 75201

			Attention: Brian Mitts

			Email: BMitts@nexpoint.com

			 

			with a copy to:

			 

			Winston & Strawn LLP

			2121 North Pearl Street

			9th Floor

			Dallas, Texas 75201

			Attention: Charles T. Haag; Justin S. Reinus

			Email: chaag@winston.com; jreinus@winston.com

			
	 	 
	 	 
	 To the Adviser:	
			NexPoint Real Estate Advisors XI, L.P.

			300 Crescent Court

			Suite 700

			Dallas, Texas 75201

			Attention: Brian Mitts

			Email: BMitts@nexpoint.com

			 

			with a copy to:

			 

			Winston & Strawn LLP

			2121 North Pearl Street

			9th Floor

			Dallas, Texas 75201

			Attention: Charles T. Haag; Justin S. Reinus

			Email: chaag@winston.com; jreinus@winston.com

			

 

13

 

 

Any party may at any time give notice in writing to the other parties of a change in its address for the purposes of this Section 19.

 

20.    Modification. This Agreement shall not be amended, supplemented, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by the parties hereto, or their respective successors or assignees.

 

21.    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.

 

22.    Governing Law; Exclusive Jurisdiction; Waiver of Jury Trial. THE PROVISIONS OF THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AS AT THE TIME IN EFFECT, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THE PARTIES TO THIS AGREEMENT HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF DELAWARE, INCLUDING ANY APPELLATE COURTS THEREOF. THE PARTIES ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

23.    Entire Agreement. This Agreement, including the Exhibits attached hereto, 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 or usage of the trade inconsistent with any of the terms hereof.

 

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

 

25.    Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.

 

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

 

27.    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.

 

14

 

 

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

 

	
			 

				
			NEXPOINT HOMES TRUST, INC.

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	 	 	 	 
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			By: 

				
			/s/ Brian Mitts

				
			 

			
	
			 

				
			 

				
			Name: Brian Mitts

			Title: President, Chief Executive Officer, Chief

			Financial Officer, Treasurer and Assistant

			Secretary

				
			 

			

 

 

	
			 

				
			NEXPOINT REAL ESTATE ADVISORS XI, L.P.

			By: NexPoint Real Estate Advisors GP, LLC

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	 	 	 	 
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			By: 

				
			/s/ Brian Mitts

				
			 

			
	
			 

				
			 

				
			Name: Brian Mitts

			Title: Chief Financial Officer, Executive Vice

			President – Finance, Secretary and Treasurer

				
			 

			

 

 

[Signature Page to Advisory Agreement]

 

 

EXHIBIT A

 

 

Description of Advisory Services.

 

Adviser will perform the following services:

 

	
			(i)

				
			Prepare monthly transaction listings;

			

 

	
			(ii)

				
			Supply various normal and customary portfolio and Company statistical data as requested on an ongoing basis;

			

 

	
			(iii)

				
			Prepare for execution and file the Company’s Federal and state tax returns: prepare a fiscal tax provision in coordination with the annual audit; prepare an excise tax provision; and prepare all relevant 1099 calculations;

			

 

	
			(iv)

				
			Coordinate contractual relationships and communications between the Company and its contractual service providers;

			

 

	
			(v)

				
			Oversee the relationships with any property or asset manager, including pursuant to the Management Agreement or any other asset and/or property management agreement that may be entered into from time to time, if applicable;

			

 

	
			(vi)

				
			Prepare income and capital gain distributions;

			

 

	
			(vii)

				
			Prepare the quarterly and annual financial statements;

			

 

	
			(viii)

				
			Monitor the Company’s compliance with the Internal Revenue Code of 1986, as amended, and particularly compliance with EBIT rules and if applicable, SEC reporting requirements;

			

 

	
			(ix)

				
			Assist in the preparation of notices of meetings of shareholders, coordinate preparation of proxy statements, including obtaining information required to be disclosed by applicable regulations and the engagement of proxy solicitors on behalf of the Company;

			

 

	
			(x)

				
			Assist in obtaining directors’ and officers’/errors and omissions insurance policies for the Company, including evaluation of insurance carriers, recommending appropriate coverage levels and evaluating the costs thereof, as such policies are approved by the Company’s Board of Directors;

			

 

	
			(xi)

				
			Draft agendas and resolutions for quarterly and special board meetings;

			

 

	
			(xii)

				
			Coordinate the preparation, assembly and posting of board materials;

			

 

	
			(xiii)

				
			Attend board meetings and draft minutes thereof;

			

 

	
			(xiv)

				
			Prepare REIT level and consolidated accounting;

			

 

	
			(xv)

				
			Arrange and manage audit;

			

 

	
			(xvi)

				
			Raise additional equity and manage the process relating thereto, including updating and revising as necessary any Confidential Private Placement Memorandum and working with any broker dealers to negotiate and secure debt financing;

			

 

	
			(xvii)

				
			Maintain the Company’s calendar to assure compliance with various filing and board approval deadlines;

			

 

A-1

 

 

	
			(xviii)

				
			Prepare and coordinate the Company’s state notice filings;

			

 

	
			(xix)

				
			Furnish the Company office space in the offices of Adviser, or in such other place or places as may be agreed from time to time, and all necessary office facilities, simple business equipment, supplies, utilities and telephone service for managing the affairs of the Company;

			

 

	
			(xx)

				
			Perform clerical, bookkeeping and other administrative services not provided by the Company’s other service providers;

			

 

	
			(xxi)

				
			Oversee the maintenance by the Company’s transfer agent and dividend disbursing agent of certain books and records of the Company and maintain (or oversee maintenance by such other persons as approved by the Board of Directors) such other books and records required by law or for the proper operation of the Company;

			

 

	
			(xxii)

				
			Determine the amounts available for distribution as dividends and distributions to be paid by the Company to its shareholders; calculate, analyze and prepare a detailed income analysis and forecast future earnings for presentation to the Board of Directors; prepare and arrange for dividend notices to shareholders, as applicable, and provide the Company’s dividend disbursing agent and custodian with such information as is required for such parties to effect the payment of dividends and distributions and to implement the Company’s dividend reinvestment plan, if any;

			

 

	
			(xxiii)

				
			Serve as liaison between the Company and each of its service providers;

			

 

	
			(xxiv)

				
			Assist in monitoring and tracking the daily cash flows of the individual assets of the Company;

			

 

	
			(xxv)

				
			Monitor compliance with leverage tests under the Company’s credit facility and other debt facilities, if any, and communicate with leverage providers and rating agencies;

			

 

	
			(xxvi)

				
			Coordinate negotiation and renewal of credit agreements for presentation to the Board of Directors;

			

 

	
			(xxvii)

				
			Coordinate negotiations of agreements with counterparties for derivatives and similar transactions, as applicable;

			

 

	
			(xxviii)

				
			Provide assistance with the closing of Real Estate Asset purchases and dispositions;

			

 

	
			(xxix)

				
			Coordinate and oversee the provision of legal services to the Company;

			

 

	
			(xxx)

				
			Cooperate with the Company’s independent registered public accounting firm in connection with audits and reviews of the Company’s financial statements, including interviews and other meetings, as necessary;

			

 

	
			(xxxi)

				
			Provide Secretary and any Assistant Secretaries, Treasurer and any Assistant Treasurers and other officers for the Company as requested;

			

 

	
			(xxxii)

				
			Develop or assist in developing guidelines and procedures to improve overall compliance by the Company;

			

 

	
			(xxxiii)

				
			Determine and monitor expense accruals for the Company;

			

 

	
			(xxxiv)

				
			Authorize expenditures and approve bills for payment on behalf of the Company;

			

 

	
			(xxxv)

				
			Monitor the number of shares of the Company registered and assist in the registration of additional shares, as necessary;

			

 

A-2

 

 

	
			(xxxvi)

				
			Exercise or procure the exercise of any rights of the Company with respect to any class action proceedings or other legal action concerning investments of the Company;

			

 

	
			(xxxvii)

				
			Prepare such reports as the Board of Directors may request from time to time;

			

 

	
			(xxxviii)

				
			Perform such additional administrative duties relating to the administration of the Company as may subsequently be agreed upon in writing between the Company and Adviser;

			

 

	
			(xxxix)

				
			Process sales and redemptions of shares of the Company;

			

 

	
			(xl)

				
			Determine, on behalf of the Company, whether a proposed transfer of shares of common stock or preferred stock should be permitted under the Company’s Articles of Incorporation and provide the necessary documentation required under the Articles of Incorporation to allow such a transfer;

			

 

	
			(xli)

				
			Prepare Net Asset Value calculations;

			

 

	
			(xlii)

				
			If applicable, prepare, coordinate with the Company’s counsel and coordinate the filing with the SEC: quarterly reports on Form 10-Q; annual reports on Form 10-K, in each case based upon information provided by the Company; assist in the preparation of Forms 3, 4 and 5 pursuant to Section 16 of the 1934 Act for the officers and directors of the Company, such filings to be based on information provided by those persons;

			

 

	
			(xliii)

				
			Assist the Company, if applicable, in the handling of SEC examinations and responses thereto;

			

 

	
			(xliv)

				
			Determine or oversee the determination of the Company’s Net Asset Value in accordance with the Company’s policies as adopted from time to time by the Board of Directors;

			

 

	
			(xlv)

				
			Design, implement, maintain and update internal accounting controls;

			

 

	
			(xlvi)

				
			Manage any long-term incentive plan that is in place at the Company-level or the Operating Partnership-level; and

			

 

	
			(xlvii)

				
			Manage any distribution reinvestment plan that is in place from time to time.

			

 

A-3ex_412667.htm

Exhibit 10.9

 

MANAGEMENT AGREEMENT

 

This MANAGEMENT AGREEMENT (this “Agreement”), dated June 8, 2022, is made and entered into by and among NexPoint SFR Operating Partnership, L.P., a Delaware limited partnership (the “OP”) and HomeSource Operations LLC, a Delaware limited liability company agreement (“Manager”).

 

RECITALS

 

WHEREAS, the OP is the operating subsidiary of NexPoint Homes Trust, Inc., a Delaware corporation (the “REIT”);

 

WHEREAS, the OP owns or otherwise has, or intends to own or otherwise have, the right to collect rents from, and contract for services for, the single-family rental properties identified and described in Schedule A attached hereto, plus any additional properties acquired by the OP or subsidiaries of the OP (together with the OP, “Owner”), in accordance with this Agreement, minus any properties sold by Owner from time to time in accordance with this Agreement (collectively, such properties owned by Owner from time to time during the term of this Agreement, the “Properties” and each, a “Property”); and

 

WHEREAS, the parties desire for Manager to provide certain management, construction, acquisition, disposition and oversight functions with respect to the Properties.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows:

 

ARTICLE I

APPOINTMENT OF MANAGER

 

SECTION 1.01     Appointment of Manager. Owner hereby appoints Manager the sole and exclusive manager for the assets of Owner, including the Properties upon the terms and conditions set forth herein. Manager hereby accepts such appointment on the terms and conditions set forth herein and shall furnish the services of its organization for the management of the assets of Owner, including the Properties.

 

SECTION 1.02     INDEPENDENT CONTRACTOR STATUS. Manager is hereby engaged to manage the assets of Owner, including the Properties, as an independent contractor.

 

ARTICLE II

TERM OF AGREEMENT

 

SECTION 2.01     Term of Agreement. This Agreement shall commence as of the date hereof (the “Effective Date”) and shall continue until June 8, 2025 (the “Term”). Upon expiration of the Term, this Agreement will automatically renew for additional one-year periods until terminated as provided in Article VIII.

 

 

 

 

ARTICLE III

MANAGER’S DUTIES AND RESPONSIBILITIES

 

SECTION 3.01     General Scope. Manager shall devote such efforts as are consistent with the Standard of Care (as defined below) in managing, coordinating and supervising the ordinary and usual business and affairs pertaining to the identification, acquisition, operation, maintenance, leasing, licensing, rehabilitation, construction, disposition and management of the Properties and in compliance with the directives of Owner or the Investment Committee (as defined below), all pursuant to the terms, conditions and limitations of this Agreement. Manager shall have such responsibilities, and shall perform and take, or cause to be performed or taken, all such services and actions customarily taken by managing agents of assets of similar nature, location, and character to that of Owner, including the Properties, consistent with the duties set forth in this Article III. Unless otherwise specifically provided in this Agreement, the written directives of Owner or the Investment Committee, the Approved Guidelines (as defined below), or the Approved Operating Budget (as defined below) (collectively, the “Guiding Documents”), all services and actions that Manager is required or permitted to perform or take, or cause to be performed or taken in connection with the management of assets of Owner, including the Properties, shall be performed or taken, as the case may be, on behalf of Owner and at Owner’s sole cost, expense, and risk. Manager’s authority is limited to performing the services set forth herein and the other Guiding Documents. Except as provided in the Guiding Documents, Manager shall have no authority (a) to execute any contract or agreement for or on behalf of Owner, (b) to provide additional services or modify existing services to tenants, or (c) to assume or create any obligation or liability or to make any representation, covenant, agreement or warranty for or on behalf of Owner.

 

SECTION 3.02     Standard of Care. Manager shall perform its duties and obligations hereunder (including, without, limitation, those set forth on Schedule D attached hereto) in a commercially reasonable manner, consistent with the degree of care, skill, prudence, diligence and good faith that a manager would use in managing other assets or performing similar services in the same geographic location (the “Standard of Care”). Without limiting the generality of the foregoing, Manager shall employ such efforts as are consistent with the Standard of Care to comply with all applicable requirements of federal, state and local laws, ordinances, rules, regulations and orders governing the leasing, promotion, management, use, operation, repair and maintenance of the Properties and the terms of any leases, mortgages or other agreements to which Properties are subject (collectively, the “Requirements” or individually a “Requirement”). Manager shall have in its employ at all times a sufficient number of capable employees to properly, adequately, safely and economically perform the duties hereunder. Further, Manager shall carry out its duties set forth herein in a manner that is consistent with Owner’s written instructions concerning its election to be taxed as a real estate investment trust under the Internal Revenue Code of 1986, as amended.

 

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SECTION 3.03     Proposed Management Plans. Manager shall prepare and submit to Owner a proposed “Management Plan” and “Operating Budget,” which shall include an annual business plan and budget of proposed Operating Expenditures and capital expenditures with respect to the leasing, management, identification, acquisition, promotion, operation, disposition, and repair and maintenance of the Properties for each calendar year (the “Fiscal Year”); provided, that if the effective date of this Agreement occurs on a date other than the first day of a calendar year, or if the day on which the term of this Agreement expires or is terminated occurs on a day other than the last day of a calendar year, then the first and last Fiscal Years, as applicable, shall be prorated according to the number of days in the applicable Fiscal Year. Proposed Management Plans and Operating Budgets shall be submitted to Owner sixty (60) days prior to the beginning of each Fiscal Year. All proposed Management Plans and Operating Budgets shall include, without limitation, leasing objectives for the next annual budget period, a marketing plan for the next annual budget period including the estimated costs of the marketing and promotional plans, a market analysis of the leasing market in which the Properties are located, and if requested by Owner, a review of the real estate taxes and assessed valuation and a recommendation concerning the merits of a tax appeal for the Properties. Owner will review the proposed Management Plan and Operating Budget and will consult with Manager prior to the commencement of the forthcoming fiscal year in order to agree on an approved Management Plan and an approved Operating Budget (collectively, the “Approved Operating Budget”). Until such time as the Management Plan and Operating Budget shall be approved by Owner as aforesaid, Manager shall, unless otherwise directed in writing by Owner and subject to the terms of this Agreement, make only those expenditures necessary to (1) maintain the physical integrity of the Properties, preserve the security of the Properties (including without limitation taxes, insurance and utilities borne by Owner), or prevent any lien or other encumbrances on the Properties, (2) comply with the Requirements, (3) comply with Owner’s obligations hereunder, as landlord under the terms of any Leases, and under any Loan Documents (as defined in Schedule G), and (4) remedy an emergency situation. Manager agrees to use such efforts as are consistent with the Standard of Care to ensure the actual costs of all Operating Expenditures and capital expenditures for the Properties shall not exceed the Approved Operating Budget, both in the aggregate and in respect of the specific budget category pertaining thereto (taking into account any variance allowances permitted in the Guiding Documents).

 

SECTION 3.04     Approved Operating Budget. The Approved Operating Budget shall constitute an authorization for Manager to establish rental rates and implement marketing strategies in accordance therewith. Manager shall supervise the preparation of all advertising layouts, brochures, and campaigns. Advertising and promotional materials shall be prepared in accordance with the Approved Operating Budget and full compliance with federal, state, and municipal fair housing laws, and Manager shall not use Owner’s name (or any Affiliate of Owner) without Owner’s express written approval.

 

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SECTION 3.05     Acquisition and Disposition. Manager shall provide management, supervisory, administrative and logistical services and support to Owner consistent with the Standard of Care and the Guiding Documents in connection with (i) the identification and evaluation of Properties that might be suitable for purchase or other acquisition, (ii) the purchase or other acquisition of Properties, and (iii) the sale or other disposition of Properties (including, without limitation, the structuring and negotiation of such transactions and the management of Owner’s dealings with brokers, appraisers, and other professionals engaged by Owner in connection with such transactions). Manager shall be responsible for the preparation of all diligence reports and the initial underwriting proposal for any new acquisition or disposition. Upon the request of Owner or any member of the Investment Committee, Manager shall deliver such reports to the Investment Committee prior to any meeting of the Investment Committee. Further, Manager will be responsible for all other reports, analysis or studies as requested by Owner or the Investment Committee, and Manager is hereby authorized to contact NexPoint Real Estate Advisors XI, L.P. (the “Adviser”) and any Lender to obtain additional information reasonably necessary for the preparation of such reports, analyses, or studies. The approved guidelines for the acquisition, disposition and leasing of existing and future Properties are attached hereto as Schedule F (the “Approved Guidelines”). The Approved Guidelines shall be applicable to the markets within which the Properties are located, and before acquiring Properties in new markets, Manager shall propose updated guidelines for properties in that market for the approval of the Investment Committee. Provided that Manager has obtained the Investment Committee’s prior written approval, Manager shall be authorized to cause Owner or an Affiliate thereof to acquire, dispose of, and lease Properties consistent with this Agreement, the Approved Guidelines and the other Guiding Documents. For purposes of clarification, Properties acquired by Owner or any subsidiaries of the OP which are not covered by any Additional Management Agreement will be deemed Properties under this Agreement, and Properties sold by Owner or any subsidiaries of the OP which are not covered by any Additional Management Agreement shall no longer be deemed Properties under this Agreement, in either case regardless of whether this Agreement or any exhibit or schedule is formally amended to reflect the new or former Properties.

 

SECTION 3.06     Construction Management. Manager shall provide management, supervisory, administrative and logistical services and support to Owner consistent with the Standard of Care and the Guiding Documents in connection with (i) the identification and evaluation of rehabilitation needed for the Properties. The approved guidelines for the identification and performance of existing and future rehabilitation on the Properties are attached hereto as the Approved Guidelines.

 

SECTION 3.07     Leasing. Manager shall exercise such efforts as are consistent with the Standard of Care to obtain and keep residents and will cooperate with any broker in any reasonable manner likely to aid in filling any vacancy. Manager is authorized, subject to the Approved Operating Budget and consistent with the Standard of Care and Guiding Documents, to oversee and direct the negotiation, preparation, and execution of all leases on Owner’s approved lease form, including all renewals and extensions of leases and to cancel and modify existing leases, provided such actions are taken in accordance with all Requirements.

 

SECTION 3.08     Financing. Owner shall provide administrative and logistical services related to the financing and refinancing of Properties. In connection with such financing and/or refinancing, Manager shall support and cooperate with Owner, including providing information requested by any potential financing source.

 

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SECTION 3.09     Security Deposits. Manager is authorized to oversee and direct any third-party property manager to (a) establish accounts on behalf of Owner for holding security deposits in accordance with the Approved Operating Budget and all Requirements, and (b) collect and refund security deposits in accordance with the terms of each resident’s lease and as may be required by applicable law.

 

SECTION 3.10     Collection of Rents and Enforcement of Leases. Manager shall exercise such efforts as are consistent with the Standard of Care to promptly collect all rents and other charges for services provided in connection with the use of the Properties. All monies collected shall be promptly deposited into the Operating Account unless otherwise directed by Owner. When necessary and permissible by applicable Requirements, Manager is authorized to oversee and direct any third party property manager to institute the following actions: (a) terminate tenancies; (b) sign and serve such notices as are deemed reasonably necessary or expedient; (c) institute and prosecute actions and evict residents; (d) recover rents and other sums due by legal proceedings; and (e) settle, compromise, and release such actions or suits, or reinstitute such tenancies.

 

SECTION 3.11     Approved Operating Expenditures.

 

(a)    The term “Operating Expenditures” shall mean the aggregate of all actual, reasonable expenses incurred by Manager in accordance with this Agreement in connection with or arising from the identification, acquisition, financing, ownership, operation, asset management, construction, repair, disposition, replacement, maintenance, and use or occupancy of the Properties including, without limitation, expenditures for: (i) license and permit fees, landowner association fees and assessments, and all other charges of any kind and nature by any governmental or public authority; (ii) management fees and any other reasonable expenses incurred by Manager consistent with the Guiding Documents; (iii) advertising and marketing expenses, and third-party leasing fees and commissions; (iv) legal, accounting, engineering, and other professional and consulting fees and disbursements; (v) accounts payable to independent contractors providing labor, material, services and equipment to the Properties; (vi) premiums for insurance paid with respect to the Properties or the operations thereof; (vii) resident improvements and replacement and segregated reserves therefor; (viii) maintenance and repair of the Properties and all property and equipment used in connection with the operation thereof; (ix) renovation, improvement and development of the Properties and all property and equipment used in connection with the operation thereof; (x) funds reserved for contingent or contested liabilities, real estate taxes, insurance premiums, or other amounts not payable on a monthly basis; (xi) service contracts and public utility charges and assessments; (xii) personnel administration charges and pre-employment screening and testing costs; (xiii) cost of third party revenue management programs; and (xiv) costs of credit reports, bank charges, and like matters. Operating Expenditures may include (A) payroll, benefits and overhead expenses approved by Owner pursuant to the Approved Operating Budget, and (B) other costs and expenses of Manager’s or its Affiliates’ personnel engaged in any Additional Services (as defined below); provided, however, that Manager shall be responsible for paying, and shall not be reimbursed for, its general administrative overhead costs and expenses, including without limitation the costs and expenses of renting its offices, employing its general administrative staff, purchasing or renting its office equipment and supplies, and maintaining phone and internet connections.

 

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(b)    For purposes of clarification, Manager may perform (or cause its Affiliates to perform) certain services (including without limitation services related to leasing, onboarding, fit-up, inspecting, renovation, improvement, development, construction, maintenance, repair, cleaning, painting or decorating any of the Properties) that could be contracted or subcontracted out to third parties hereunder, and, for performing such services, Manager (or its Affiliates) shall be entitled to reimbursement for the costs and expenses incurred performing such services (in addition to the Management Fees contemplated under Article VI) at rates commensurate with rates that would be payable to unrelated third parties if the Manager engaged such unrelated third parties to perform such services (collectively, the “Additional Services”).

 

(c)    The Approved Operating Budget shall constitute an authorization for Manager to expend the amounts approved as long as the expenses are incurred in connection with the operation and management of the Properties. Manager shall employ such efforts as are consistent with the Standard of Care to ensure that the actual costs of maintaining and operating the Properties shall not exceed the Approved Operating Budget and significant year-to-date budget variances will be explained to Owner each month. In cases of emergency, Manager may make expenditures which exceed the aforementioned spending limit without prior approval, if such expenditures are necessary in the reasonable judgment of Manager to effectively protect the Properties or to prevent personal injury and is not in excess of $50,000.00 with respect to any individual Property or $1,000,000.000 collectively among all Properties during any calendar year. Manager will promptly notify Owner of any such emergency.

 

SECTION 3.12     Approved Capital Expenditures. Any capital expenditures set forth in the Approved Operating Budget shall constitute an authorization for Manager to expend the amounts approved; however, any capital expenditure (excluding expenditures related to acquisition activities and rehabilitation of newly acquired Properties) over $30,000.00 per Property shall be awarded on the basis of competitive bidding, solicited in the following manner: (a) a minimum of two (2) written bids shall be obtained for each purchase where possible and practical to obtain such bids; (b) each bid will be solicited in a form so that uniformity will exist in the bid quotes; (c) Manager shall provide the Investment Committee with all bid responses accompanied by Manager’s recommendations as to the most acceptable bid; and (d) the Investment Committee shall be free to accept or reject any and all bids, provided that if the Investment Committee fails to do so within three (3) Business Days, Manager shall provide written notice to the Investment Committee that a failure to respond within one (1) Business Day shall constitute a deemed approval, and the Investment Committee fails to do so within such one (1) business day, such failure shall be deemed acceptance]. Owner shall be responsible for capital expenditures set forth in the Approved Operating Budget, and may pay some from its own resources or may authorize payment by Manager out of available funds in the Operating Account.

 

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SECTION 3.13     Public Utility and Service Contracts. To the extent applicable, Manager shall negotiate and execute, in its capacity as Owner’s agent, contracts for water, electricity, gas, vermin or pest extermination, and any other services which are necessary to properly maintain the Properties. All required utility deposits will be the responsibility of Owner and each contract shall: (a) be in the name of, and expense of, Owner; and (b) include a provision for cancellation thereof by Owner or Manager upon not more than thirty (30) days written notice or longer period if reasonable.

 

SECTION 3.14     Debt Service and Tax Payments. If requested by Owner, and sufficient funds are available in the Operating Account to satisfy all outstanding Operating Expenditures of the Properties, Manager will apply any surplus operating funds to pay (to the extent of such surplus funds) the debt service and taxes due pursuant to any federal, state, county, or municipal authority, or other similar body having jurisdiction thereover. If Owner notifies Manager to make such payments after the beginning of the Term of this Agreement, Manager shall have the authority to name a new contingency reserve amount pursuant to Section 5.01 of this Agreement, and Owner authorizes Manager to maintain this new contingency reserve amount at all times in the Operating Account. Manager shall not take any action under this Section 3.14 so long as Owner is contesting, or has notified Manager of its intention to contest, any such order or requirement. Owner will supply all information necessary for Manager to comply promptly with these requirements.

 

SECTION 3.15     Oversight of Subcontractors. To the extent Manager has subcontracted or delegated any of its responsibilities hereunder to any subcontractor in accordance with Article X, Manager shall oversee such subcontractor to ensure compliance with the responsibilities of Manager hereunder. In addition, Manager shall provide oversight of any third-party property manager hired by Owner with respect to the Properties and shall cooperate with Owner, to the extent commercially reasonable, to take any actions, including the execution of documents, in order to evidence Manager’s oversight obligations or such third-party property manager.

 

SECTION 3.16     Compliance with Regulations. Manager shall employ such efforts as are consistent with the Standard of Care to cause the Properties to be in compliance with all Requirements. Manager shall promptly give written notice to Owner of Manager’s receipt of any oral or written notice of the actual existence (or material violation that is reasonably likely to occur) of a material violation of any material Requirement or as otherwise required by the Standard of Care (a “Violation”), and Manager shall promptly cure at Owner’s expense any such Violation applicable to any Property, other than a Violation that is required to be cured by the respective tenants under the leases in effect at the Property. Expenses incurred in curing any Violation applicable to any Property may be paid from the Operating Account to the extent such expenses have been budgeted for in the Approved Operating Budget, and provided such expenses do not exceed $25,000.00 in any one instance. If (1) such expenses have not been so budgeted, (2) more than $25,000.00 is required to remedy a Violation, or (3) a Violation is one for which Owner may be subject to penalty, Manager shall immediately notify Owner of such Violation and advise Owner regarding a course of action for curing such Violation.

 

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SECTION 3.17     Environmental Risk Management. Owner acknowledges and understands that Manager, except with respect to the obligations set forth in Section 3.05 and Schedule D, is not responsible for (1) evaluating the presence or absence of hazardous or toxic substances, mold, waste, materials, electromagnetic field, radon, or radioactive materials upon, within, above, or beneath the Properties; (2) maintaining or evaluating compliance with environmental, hazardous or solid materials or waste laws, rules and regulations (except for any operating and maintenance plan applicable to the Properties or in connection with Manager’s construction management duties); or (3) conducting or ensuring clean-up or remediation of existing or identified Hazardous Material spills or contamination unless the parties otherwise agree in writing or as expressly provided herein.

 

(a)    Accordingly, Manager’s obligations to Owner with respect to the presence of Hazardous Materials, and/or with the compliance and enforcement of Hazardous Materials Laws shall be subject to, conditioned upon, and limited by the following:

 

(i)    Owner may from time to time, at Owner’s sole discretion and expense, obtain from an independent environmental consultant retained by Owner, an environmental assessment report on the Properties (or any of them) and may have such assessment report periodically updated.

 

(ii)    Except as provided by Section 3.17(a)(iii), Section 3.05, Schedule D, or as otherwise expressly agreed in writing by the parties, Manager shall not be obligated to make an independent determination as to the presence or absence of Hazardous Materials, or whether the Properties are in violation or compliance with any Hazardous Materials Laws. Manager may seek, on Owner’s behalf and at Owner’s expense, to enforce a resident’s compliance with any Hazardous Materials Laws in accordance with an environmental consultant’s recommendations contained in any environmental assessment report. Manager shall not have any obligation to determine whether or not Owner, any residents, the Properties, or any portion thereof is in compliance with Hazardous Materials Laws; provided, Manager shall promptly notify Owner of any violations or potential violations of Hazardous Materials Laws observed on the Properties.

 

(iii)    Manager shall be responsible for any Hazardous Materials which it uses or introduces to the Properties, including storage, containment, removal, or remediation as required by applicable law. To the extent Hazardous Materials (such as cleaning supplies or fuel) are required by Manager in the discharge of its duties under this Agreement, Manager shall only use and store quantities of such Hazardous Materials as are permitted under applicable law and Schedule D, and shall store, use and dispose of such Hazardous Materials in accordance with applicable laws. In connection with the foregoing, Manager hereby agrees to and shall indemnify, protect, defend, save, and hold harmless Owner, its principals and employees, and their respective successors and assigns from any claim, cause of action, liability, loss, demand, damages (including damages associated with any environmental law), fine, penalty, injury, cost, or expense (including attorney’s fees and expenses) arising out of or relating in any way to Manager’s violation of this Section 3.17(a)(iii).

 

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(iv)    Manager shall not be responsible for the abatement, clean-up or remediation of any spill of or contamination from any Hazardous Materials upon, beneath, or within all, or any portion, of the Properties (other than Hazardous Materials introduced, used or stored by Manager in violation of Section 3.17(a)(iii)), and the entire responsibility for such clean-up, abatement, or remediation shall lie with Owner and Owner’s environmental consultation. However, Manager shall cooperate with Owner in coordinating and supervising any abatement, clean-up, monitoring or remedial action on a Property site. Owner agrees that, with respect to any abatement, clean-up, or remedial action, Owner shall employ a qualified and licensed environmental clean-up company to undertake such clean-up and remediation, and Owner’s environmental consultant shall oversee the entire abatement, clean-up and remediation process and the obtaining of any required governmental approvals. If the clean-up or remediation is the responsibility of any resident of the Properties and/or the Owner’s environmental consultant, Manager shall, on Owner’s behalf, require the resident to utilize qualified and licensed environmental clean-up companies and ensure that the clean-up and remediation is conducted to Owner’s satisfaction and in accordance with all Hazardous Materials Laws, governmental laws and approvals of which Manager is aware.

 

(v)    In connection with the foregoing, Owner hereby agrees to and shall indemnify, protect, defend, save, and hold harmless Manager, its principals and employees, and their respective successors and assigns from any claim, cause of action, liability, loss, demand, damages (including damages associated with any environmental law), fine, penalty, injury, cost or expense (including attorney’s fees and expenses) arising out of or relating in any way to (1) the actions, or failure to act, by Manager in following Owner’s and Owner’s environmental consultant’s directions, (2) Owner’s failure or refusal to employ an environmental consultant with respect to the Properties, (3) the acts, omissions, or negligence of Owner, Owner’s environmental consultant, or the failure of such environmental consultant, to fulfill its obligations with respect to the Properties, (4) any violation of Hazardous Materials Laws applicable to the Properties (except as set forth in Section 3.17(a)(iii) above), (5) the designation of Manager as an “operator” or the Properties as a “regulated facility” under Hazardous Materials Laws, or otherwise liable as a party under Hazardous Materials Laws, or as a party in any claim for contribution, cost recovery or indemnity against Manager, or its insurer arising out of the foregoing (except as set forth in Section 3.17(a)(iii) above), and (6) any condition or circumstance arising initially prior to the date of the Original Management Agreement (regardless of whether such condition or circumstance continues). The foregoing indemnity shall not apply to any claim, cause of action, liability, loss, demand, damages (including damages associated with any environmental law), fine, penalty, injury, cost, or expense (including attorney’s fees and expenses) resulting from an indemnified party’s sole or gross negligence or willful misconduct.

 

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(b)    The indemnities herein shall be immediately vested and shall survive the expiration or termination of this Agreement.

 

SECTION 3.18     Disclaimer of Certain Liabilities. Manager assumes no liability for any acts or omissions of Owner. Manager assumes no liability for any failure of, or default by, any tenant in the payment of any rent or other charges due Owner or in the performance of any obligations owed by any tenant to Owner pursuant to any lease or otherwise.

 

SECTION 3.19     No Requirement to Advance Funds. In no event shall Manager advance any monies on behalf of Owner, lend its credit to the Properties, or incur any liability in Manager’s own name.

 

SECTION 3.20     Representations. Manager represents and warrants to Owner as follows:

 

(a)    Manager (i) is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware, (ii) has qualified or will qualify to do business as a foreign corporation and will remain so qualified, and is and will remain in good standing, in each jurisdiction where the character of its property or the nature of its activities makes such qualification necessary and in which failure to so qualify would have a material adverse effect upon Manager or its ability to perform its obligations hereunder, (iii) has and will have limited liability company power to own its property, carry on its business as presently conducted, and to enter into and perform it obligations under this Agreement and (iv) has and will have all licenses or other governmental approvals necessary to perform it obligations hereunder.

 

(b)    The execution and delivery by Manager of this Agreement has been duly authorized by all necessary limited liability company action on the part of Manager. Neither the execution and delivery of this Agreement, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof, will conflict with or result in a breach of, or constitute a default under, any of the provisions of any law, governmental rule, regulation, judgment, decree or order binding on Manager or its property or the certificate of formation of Manager, or any of the provisions of any indenture, mortgage, contract or other instrument to which Manager is a party or by which it is bound or result in the creation or imposition of any lien, charge or encumbrance upon any of its property pursuant to the terms of any such indenture, mortgage, contract or other instrument.

 

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(c)    The execution and delivery by Manager of this Agreement does not require the consent or approval of, the giving of notice to, the registration or filing with, or the taking of any other action in respect of any state, federal or other governmental authority or agency. Any and all prior exclusive agreements with any third-party, including AV HomeSource, LP and its Affiliates, has been terminated and Manager is not restricted from entering into this Agreement. As of the Effective Date, the Manager is not providing any similar services for any property that is not owned by Owner and does not receive any income from any third-party other than reimbursements from services provided by Manager’s Affiliates that have been disclosed to Owner. Further, as of the Effective Date, the Manager does not expect to receive any income other than as a result of payments by Owner to Manager pursuant to this Agreement or reimbursements from services provided by Manager’s Affiliates that have been disclosed to Owner.

 

(d)    This Agreement has been duly executed and delivered by Manager and, assuming due authorization, execution and delivery by Owner, constitutes a valid and binding obligation of Manager enforceable against it in accordance with its terms (subject to applicable bankruptcy and insolvency laws and other similar laws affecting the enforcement of the rights of creditors generally and general principles of equity).

 

(e)    There are no actions, suits, or proceedings pending, or, to the knowledge of Manager, threatened or likely to be asserted against or affecting Manager before or by any court, administrative agency, arbitrator, or governmental body (i) with respect to any of the transactions contemplated by this Agreement or (ii) with respect to any other matter which in the judgment of Manager will be determined adversely to Manager or if determined adversely to Manager, will materially and adversely affect it or its business, assets, operations or condition, financial or otherwise, or adversely affect Manager’s ability to perform its obligations under this Agreement. Manager is not in default with respect to any order of any court, administrative agency, arbitrator or governmental body so as to materially and adversely affect the transactions contemplated by the above mentioned documents.

 

(f)    No consents, approvals, waivers or notifications of members, creditors, lessors or other nongovernmental persons are required to be obtained by Manager in connection with the execution and delivery of this Agreement and the consummation of all the transactions herein contemplated.

 

(g)    Manager is not (and no person or entity owning a beneficial interest equal to or greater than twenty percent (20%) in Manager shall be) subject to sanctions of the United States government or in violation of any federal, state, municipal or local laws, statutes, codes, ordinances, orders, decrees, rules or regulations (“Laws”) relating to terrorism or money laundering, including, without limitation, Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the “Executive Order”) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56, the “Patriot Act”). Neither Manager nor any person or entity owning a beneficial interest equal to or greater than twenty percent (20%) in Manager is a “Prohibited Person,” which term is defined as: (i) a person or entity that is listed in the Annex to, or is otherwise subject to the provisions of, the Executive Order; (ii) a person or entity owned or controlled by, or acting for or on behalf of, any person or entity that is listed in the Annex to, or is otherwise subject to the provisions of, the Executive Order; (iii) a person or entity with whom Manager is prohibited from dealing or otherwise engaging in any transaction by any terrorism or anti-money laundering Law, including the Executive Order and the Patriot Act; (iv) a person or entity who commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order; or (v) a person or entity that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website, http://www.treas.gov/ofac/tllusdn.pdf or any replacement website or other replacement official publication of such list.

 

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(h)    As of the Effective Date, Manager has no actual knowledge of any illegal activities relating to controlled substances on any Property.

 

(i)    As of the Effective Date, to Manager’s actual knowledge, (i) each Property is being used exclusively as a residential rental property and (ii) no illegal activity is taking place at any Property.

 

SECTION 3.21     Investment Committee. Notwithstanding anything to the contrary herein, the duties and responsibilities of Manager set forth herein are subject in all respects to the authority of the investment committee of the OP (the “Investment Committee”) pursuant to the terms set forth in the Limited Partnership Agreement of the OP (as may be amended and/or restated from time to time, the “LPA”). Owner shall at all times provide Manager with a true and correct copy of the LPA, and notify Manager of any changes (or contemplated changes) by the Investment Committee that would impact Manager’s duties or responsibilities hereunder.

 

SECTION 3.22     Additional Covenants. Manager shall exercise such efforts as are consistent with the Standard of Care to comply with the terms and conditions of Schedule D attached hereto and agrees not to knowingly or intentionally take any action in material contravention thereof.

 

ARTICLE IV

BANKING AND FINANCIAL RECORDS

 

SECTION 4.01     Account Agency Agreement & Bank Accounts. Owner (or a Subsidiary) and Manager entered, or intend to enter, into the Account Agency Agreement, attached as Schedule B. Manager is responsible for providing effective internal controls and efficiencies. Owner (or a Subsidiary) will maintain a separate operating account at Owner’s (or a Subsidiary’s) platform bank or other bank acceptable to Owner (the “Operating Account”) and a separate acquisition account at Owner’s (or a Subsidiary’s) platform bank or other bank acceptable to Owner (the “Acquisition Account”), and each have been named in the Account Agency Agreement. Owner shall retain the ability to change the platform banks at its discretion with reasonable notice to Manager. It is understood that the bank account contemplated and authorized by the Account Agency Agreement shall be a non-interest bearing checking account.

 

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SECTION 4.02     Financial Recordkeeping. Financial records include, but are not limited to, general ledgers for each account, journal entries, all supporting documentation and calculations used to create journal entries, trial balances, financial statements, bank statements, bank reconciliations, tax reports, accounts payable and receivable records, rent rolls, tenant information, portfolio analysis routinely created or created at the request of Owner, ad hoc reports requested by Owner from time to time and any other financial records and reports listed on Schedule C. At Owner’s cost, Manager shall maintain, at Manager’s premises and electronically in a centralized location designated and accessible by Owner, and maintain in a manner customary and consistent with generally accepted accounting principles, financial records based on Owner’s fiscal year-end. Further, at Owner’s cost, Manager shall provide Owner with connectivity to any systems utilized by Manager. Manager shall not delete, destroy, relocate or otherwise make any historical record inaccessible to Owner without Owner’s prior written consent. Manager shall use its own chart of accounts and monthly financial statements may be cut-off approximately five (5) days prior to month-end. Owner shall bear the expense of maintaining financial records electronically and the expense of storing historical financial records that are more than 36 months old.

 

SECTION 4.03     Internal Controls Environment. Manager shall continuously maintain an internal control environment that is customary and consistent with the size and complexity of Owner’s business and the Standard of Care. At Owner’s expense, Owner may hire consultants and other advisors to further develop and refine Manager’s internal controls. Manager agrees, at Owner’s expense, to implement all reasonable suggestions Owner makes to modify internal controls and agrees to periodic testing and remediation of any identified deficiencies. Manager also agrees to assist in an audit of the internal controls if requested by Owner, to be completed at Owner’s expense and in accordance with Section 4.05 herein.

 

SECTION 4.04     Required Financial Reports. Manager shall furnish as listed on Schedule C monthly reports of collections, disbursements, and other accounting matters. These reports will be received by Owner not later than the 10th of each month. To support the monthly financial reports, Manager shall maintain at Manager’s premises copies of the following: (a) bank statements, bank deposit slips, and cancelled checks; (b) comprehensive bank reconciliations; (c) detailed cash receipt records; (d) summaries of adjusting journal entries, and (e) supporting documentation for payroll, payroll taxes, and employee benefits.

 

SECTION 4.05     Owner’s Right to Audit and Test. Manager, in the conduct of its responsibilities and obligations to Owner hereunder, shall maintain complete, accurate, and separate books and records for the Properties, the entries to which shall be supported by sufficient documentation to ascertain that said entries are properly and accurately recorded with regard to each Property. Such books and records shall be maintained in accordance with Owner's financial information requirements and shall at all times be the property of Owner. Manager shall maintain such books and records for a period of not less than twelve (12) months after the date of expiration or earlier termination of this Agreement, except that upon any termination of this Agreement by Owner, Manager shall immediately deliver to Owner all such books and records. Owner reserves the right to conduct an examination of the books and records maintained by Manager for Owner or that relate to the calculation of the fees, expenses, or other compensation paid or payable pursuant to this Agreement, and to perform any and all audit tests (whether conducted by the external auditors or Owner’s internal audit team) relating to Manager’s activities, either at the Properties, or at the office of Manager; provided such examination and tests are related to those activities performed by Manager for Owner or the calculation of the fees, expenses, or other compensation paid or payable pursuant to this Agreement. Owner may also conduct periodic testing of Manager’s internal controls. For purposes of clarity and not limitation, Owner shall have the right to examine and audit Manager’s books and records in order to verify the accuracy of the Cash Cap (as defined below). Owner shall give Manager not less than forty-eight (48) hours written notice of any such audit, examination or testing. Any and all such audits conducted either by Owner’s employees or appointees will be at the sole expense of Owner.

 

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SECTION 4.06     Disbursement of Deposits. If requested by Owner, Manager shall remit to Owner with the monthly financial report all unexpended operating funds, except for a reserve of contingencies, as provided in Section 5.01 below, which shall remain in the Operating Account.

 

ARTICLE V

OWNER’S DUTIES AND RESPONSIBILITIES

 

SECTION 5.01     Contingency Reserves. Owner authorizes Manager to maintain a contingency reserve of $500.00 per Property at all times in each of the Operating Account, to enable Manager to pay obligations of Owner under this Agreement as they become due, and the Acquisition Account, to enable Manager to acquire new Properties in accordance with this Agreement and the Approved Operating Budget.

 

SECTION 5.02     Insufficient Operating Funds. If a cash flow deficit can be anticipated in the next budgeted month of operations, Owner agrees to, prior to the commencement of the next budgeted month, remit to Manager sufficient funds to cover the anticipated deficiency and fully fund the Operating Expenditures and approved contingency reserves. In the event that funds in the Operating Account become insufficient to cover all Operating Expenditures and approved contingency reserves, Owner agrees to, within three (3) days of notice, remit to Manager sufficient funds to cover the deficiency and replenish the contingency reserves. Notwithstanding any provision hereof to the contrary, Manager’s performance under this Agreement shall be excused and shall in no event be in default in the event there are insufficient funds in the Operating Account to perform its services described hereunder unless due to the gross negligence or willful misconduct of Manager.

 

SECTION 5.03     Manager’s Compensation. Owner agrees to pay Manager, as compensation for services in accordance with the terms of this Agreement, the compensation as specified in Article VI below. To the extent due in cash, Manager’s compensation may be paid to itself by Manager, on behalf of Owner, when due hereunder from the Operating Account.

 

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SECTION 5.04     Manager’s Costs to be Reimbursed. Owner agrees to reimburse Manager for all direct costs incurred in managing, leasing, rehabilitating and maintaining the Properties in accordance with the terms of this Agreement and the Approved Operating Budget. Manager’s reimbursement may be paid to itself by Manager, on behalf of Owner, from the Operating Account as incurred by Manager.

 

SECTION 5.05     Representations. As of the Effective Date, Owner represents and warrants to Manager as follows:

 

(a)    The OP (i) is a corporation or limited partnership, respectively, duly formed, validly existing and in good standing under the laws of the State of Delaware, (ii) has qualified or will qualify to do business as a foreign corporation and will remain so qualified, and is and will remain in good standing, in each jurisdiction where the character of its Properties or the nature of its activities makes such qualification necessary and in which failure to so qualify would have a material adverse effect upon the OP or its ability to perform its obligations hereunder, (iii) has and will have full limited partnership power to own the Properties, carry on its business as presently conducted, and to enter into and perform it obligations under this Agreement and (iv) has and will have all licenses or other governmental approvals necessary to perform it obligations hereunder.

 

(b)    The execution and delivery by the OP of this Agreement has been duly authorized by all necessary limited partnership action on the part of the OP. Neither the execution and delivery of this Agreement, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof, will conflict with or result in a breach of, or constitute a default under, any of the provisions of any law, governmental rule, regulation, judgment, decree or order binding on the OP or their Properties or the certificate of formation of the OP or any of the provisions of any indenture, mortgage, contract or other instrument to which the OP is a party or by which it is bound or result in the creation or imposition of any lien, charge or encumbrance upon any of the Properties pursuant to the terms of any such indenture, mortgage, contract or other instrument.

 

(c)    The execution and delivery by the OP of this Agreement does not require the consent or approval of, the giving of notice to, the registration or filing with, or the taking of any other action in respect of any state, federal or other governmental authority or agency.

 

(d)    This Agreement has been duly executed and delivered by the OP and, assuming due authorization, execution and delivery by Manager, constitutes a valid and binding obligation of the OP enforceable against it in accordance with its terms (subject to applicable bankruptcy and insolvency laws and other similar laws affecting the enforcement of the rights of creditors generally and general principles of equity).

 

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(e)    There are no actions, suits, or proceedings pending, or, to the knowledge of the OP, threatened or likely to be asserted against or affecting the OP before or by any court, administrative agency, arbitrator, or governmental body (i) with respect to any of the transactions contemplated by this Agreement or (ii) with respect to any other matter which in the judgment of Owner will be determined adversely to the OP or if determined adversely to the OP, will materially and adversely affect it or its business, assets, operations or condition, financial or otherwise, or adversely affect the OP’s ability to perform its obligations under this Agreement. The OP is not in default with respect to any order of any court, administrative agency, arbitrator or governmental body so as to materially and adversely affect the transactions contemplated by the above mentioned documents.

 

(f)    No consents, approvals, waivers or notifications of members, creditors, lessors or other nongovernmental persons are required to be obtained by the OP in connection with the execution and delivery of this Agreement and the consummation of all the transactions herein contemplated.

 

(g)    The OP is not (and no person or entity owning a beneficial interest equal to or greater than twenty percent (20%) in the OP shall be) subject to sanctions of the United States government or in violation of any Laws relating to terrorism or money laundering, including, without limitation, the Executive Order and the Patriot Act. Neither the OP nor any person or entity owning a beneficial interest equal to or greater than twenty percent (20%) in the OP is a Prohibited Person.

 

ARTICLE VI

COMPENSATION OF THE MANAGER

 

SECTION 6.01     Acquisition Fees. Owner shall pay to Manager a fee in the amount of 2.0% of (i) the construction costs of “build-to-rent” homes (including land purchase and construction costs but excluding loan and other closing costs) paid by Owner, or (ii) the purchase price with respect to the acquisition of any Property that is not “build-to-rent” (including the purchase price of purchased homes, but excluding budgeted rehabilitation, loan and other closing costs ) (the “Acquisition Fee”). Notwithstanding the foregoing, in no event shall Manager be entitled to any compensation in connection with debt placement.

 

SECTION 6.02     Construction Fees. Owner shall pay to Manager (or subsidiaries of the Manager subcontracted to complete such construction pursuant to Section 10.02) a fee in the amount of 10.0% of rehabilitation costs (excluding “build-to-rent” projects and repairs and maintenance expenses incurred in the normal course of operations) (the “Construction Fee”). For avoidance of doubt, Manager is not entitled to a Construction Fee on “build-to-rent” projects.

 

SECTION 6.03     Asset Management Fee. For each Property, Owner shall pay to Manager on a monthly basis in arrears, fees for services provided by Manager to manage the portfolio equal to 1.0% of the Effective Gross Income (the “Asset Management Fee”), and together with the Acquisition Fee and the Construction Fee, the “Management Fees”).

 

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SECTION 6.04     Profit Cap. Manager’s EBITDA payable in cash shall be capped at the greater of $3 million or 0.5% of the Consolidated Enterprise Value of the REIT (the “Cash Cap”) per calendar year, and OP hereby agrees that the portion of Manager’s EBITDA equal to or greater than the Cash Cap for a given calendar year shall be paid in the form of OP Units issued to Manager at a price per OP Unit equal to the then-current Net Asset Value. In lieu of payment to the Manager in accordance with this Section 6.04, the Manager and the Owner agree that, upon delivery of written request by the Manager to the Owner, the payment of OP Units in excess of the Cash Cap may be directed instead to the Manager Equityholders (or their designees) in accordance with their respective ownership percentages in the Manager, such designees and percentages to be included in the notice delivered by the Manager. The calculation of the Cash Cap will be performed quarterly and payment of the Management Fees subject to the limitations provided in this section will be paid within 30 days of the end of each quarter, subject to Manager’s or the Manager Equityholders’ (or their designees’) compliance with all U.S. federal and state securities laws.

 

SECTION 6.05     Definitions.

 

“Consolidated Enterprise Value” shall mean (x) the aggregate number of outstanding shares of the REIT’s common stock, par value $0.01 per share, and OP Units (excluding OP Units owned by the REIT) multiplied by the then-current Net Asset Value, plus (y) the then-current outstanding debt of the REIT, the OP and their subsidiaries plus the then-current redemption value of any outstanding preferred equity of the REIT and the OP (excluding preferred equity owned by the REIT).

 

“Effective Gross Income” shall mean the amount of Gross Potential Rental Income for each Property plus other income items, fees or revenue collected by Manager (including, for example, application fees, forced place insurance, late fees, security deposits (except to the extent applied to rent per the terms of the lease pertaining to any Property), and bad check fees) less vacancy and collection losses.

 

“EBITDA” means Manager’s profit, based upon Manager’s earnings before deductions for interest expenses, taxes, depreciation, and amortization as calculated according to generally accepted account principles as codified by the Financial Accounting Standards Board (“GAAP”).

 

“Gross Potential Rental Income” shall mean the total rental income for each Property as if all units were fully leased and rented at market rents with a zero vacancy rate.

 

“Net Asset Value” means the net asset value of the REIT and the OP to be calculated by Green Street Advisors (“GSA”) or another reputable third party on a quarterly or monthly basis, but no less frequently than quarterly, using a methodology developed in conjunction with GSA (or other firm) and the REIT management team to be approved by the Board of Directors of the REIT and the Investment Committee.

 

“OP Units” means common units of limited partnership interest in the OP.

 

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SECTION 6.06     Additional Services; No Other Compensation. The Management Fees are in addition to the reimbursements otherwise due to Manager under this Agreement, including for the Additional Services as described in Section 3.11. Manager expressly agrees that Manager shall not be entitled to receive any other compensation or other payments from Owner for services provided in respect of the Property (including, without limitation, for construction management, legal, tenant coordination, design, engineering, consulting or any other services performed by Manager or its Affiliates) unless expressly provided for in this Agreement or pursuant to a separate written agreement between Owner and Manager.

 

ARTICLE VII

INSURANCE AND INDEMNIFICATION

 

SECTION 7.01      Property and Liability Insurance. Manager shall, at Owner’s sole cost and expense, promptly obtain and keep in force at all times adequate insurance against physical damage (e.g., fire with extended coverage endorsement) and against liability for loss, damage, or injury to property or persons which might arise out of the occupancy, management, operation, or maintenance of the Properties and in accordance with Schedule D. If flood insurance coverage is required by any applicable law or Lender, separate policies shall be procured at Owner’s sole cost and expense. Liability insurance must include a Commercial General Liability Policy and shall have bodily injury and property damage combined single limits of $1,000,000 each occurrence/$1,000,000 aggregate; provided, however, that such limits will be increased, if necessary, to meet requirements of any Lenders in any Loan Document. Such liability insurance shall be deemed to be primary coverage over Manager’s general liability insurance and must cover claims asserted by reason of alleged wrongful actions, fault, or negligence on the part of third-parties and independent contractors, including persons employed by or acting on behalf of the Properties and Owner. Such insurance shall include Manager as an “Additional Insured” and provide for the payment of all costs of defense of any claims. Any deductible required under such insurance policies shall be Owner’s expense. Liability insurance shall be written by a nationally recognized and reputable carrier licensed to do business in the state in which such Property is located. Manager shall furnish Owner with certificates evidencing such insurance and duplicate copies of such policies. The certificates evidencing insurance shall have attached thereto an endorsement from the actual policy that Manager, Owner, and any Lender shall be given at least thirty (30) days prior written notice (by certified mail) of cancellation, non-renewal, or any material change in the subject policy. Without limiting the generality of the foregoing, the parties acknowledge that as of the date of this Agreement, Manager has procured the foregoing policies of insurance on behalf of Owner.

 

SECTION 7.02     Workers’ Compensation Insurance. Manager shall, at Owner’s expense, maintain workers’ compensation insurance covering all employees of Manager employed in, on, or about the Properties so as to provide statutory benefits required by state and federal laws. Manager shall be reimbursed by Owner for the cost of providing workers’ compensation insurance according to the Approved Operating Budget.

 

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SECTION 7.03     Fidelity Bond. Manager will maintain, at Manager’s expense, a comprehensive fidelity bond covering all employees of Manager who handle or are responsible for the safekeeping of any monies of Owner.

 

SECTION 7.04     Indemnification. Owner shall indemnify, defend, and hold harmless Manager and its agents and employees from and against all claims, liabilities, losses, damages, and/or expenses arising out of (i) Manager’s performance under this Agreement, or (ii) facts occurrences, or matters first arising prior to the date of this Agreement. Owner, at its own cost and expense, shall defend any action or proceeding against Manager arising therefrom. Notwithstanding the foregoing, Owner shall not be required to indemnify Manager against damages or expenses suffered as a result of the gross negligence, willful misconduct, or fraud on the part of Manager, its agents or employees. Manager shall indemnify, defend and hold harmless Owner and its agents from and against all claims, liabilities, losses, damages and/or expenses arising out of the gross negligence, willful misconduct, or fraud on the part of Manager, its agents, or employees, and shall at its own cost and expense defend any action or proceeding against Owner arising therefrom.

 

ARTICLE VIII

TERMINATION

 

SECTION 8.01     Termination. Notwithstanding the provisions of Article II above, this Agreement may also be terminated as follows:

 

(a)    Automatically, in the event (i) Owner sells or otherwise disposes of all or substantially all of the Properties or (ii) a Bankruptcy Event occurs with respect to Manager provided that Manager shall have sixty (60) days to obtain a dismissal of a Bankruptcy Event occurring pursuant to subsection (e) of the definition of “Bankruptcy Event” as set forth in Schedule G;

 

(b)    by Manager, in the event Owner materially defaults in the performance of any of its obligations under this Agreement and fails to cure such default within thirty (30) days after its receipt from Manager of a notice of default (specifying in reasonable detail the nature of the default complained of); provided, however, that if such default cannot be cured within thirty (30) days, then such additional period as shall be reasonable, provided that Owner has commenced to cure such default within such thirty (30) day period, has proceeded to prosecute such cure with due diligence and such cure is completed within ninety (90) days after Owner’s receipt of the notice of default;

 

(c)    by Owner, in the event Manager materially defaults in the performance of any of its obligations under this Agreement and fails to cure such default within thirty (30) days after its receipt from Owner of a notice of default (specifying in reasonable detail the nature of the default complained of); provided, however, that if such default cannot be cured within thirty (30) days, then such additional period as shall be reasonable, provided that Manager has commenced to cure such default within such thirty (30) day period, has proceeded to prosecute such cure with due diligence and such cure is completed within ninety (90) days after Manager’s receipt of the notice of default;

 

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(d)    by Manager, if a Bankruptcy Event occurs with respect to Owner, provided that Owner shall have sixty (60) days to obtain a dismissal of a Bankruptcy Event occurring pursuant to subsection (e) of the definition of “Bankruptcy Event” as set forth in Schedule G, in any such event, termination to become effective upon written notice to Owner;

 

(e)    by Owner, without cause upon not less than one hundred twenty (120) days prior written notice to Manager; or

 

(f)    by Owner, in the event that two of the Manager Equityholders ceases to be an equityholder (directly or indirectly) or ceases to lead the activities of Manager (each, a “Key-Man Event”), unless within thirty (30) days thereafter Manager presents one or more substitute key persons in the place of such Manager Equityholder, as necessary, who are reasonably acceptable to Owner. Owner shall have the right to terminate this Agreement immediately and for cause after the expiration of the foregoing cure period following the occurrence of a Key-Man Event if Manager does not present a replacement reasonably acceptable to Owner.

 

Any amounts accruing to Manager prior to such termination, shall be due and payable upon termination of this Agreement; provided, however, that in the event this Agreement is terminated pursuant to Section 8.01(c), no further fees or expenses shall be payable to Manager thereafter, other than reimbursement of expenses properly documented and supported by invoices or receipts.

 

SECTION 8.02     Termination Fee. If Owner terminates this Agreement pursuant to Section 8.01(a)(i) or Section 8.01(e) before the end of the Term or any subsequent term year, then Owner shall be obligated to pay Manager an amount equal to 4.0 times the annual Management Fees. For the purposes of this Section 8.02, the amount of the annual Management Fees will be determined by taking the aggregate Management Fees for the last full fiscal quarter immediately preceding termination and multiplying such amount by 4.0. In addition, any amounts accruing to Manager prior to such termination, shall be due and payable upon termination of this Agreement. To the extent funds are available, such sums shall be payable from the Operating Account. Any amount due in excess of the funds available from the Operating Account shall be paid by Owner to Manager upon demand. For the avoidance of doubt, fees attributable to Additional Services are not considered in the calculation of the termination fee.

 

SECTION 8.03     Owner Responsible for Payments. Owner will be responsible for the direct handling and payment of invoices received after notice of termination. Upon notice of termination, Manager will submit to Owner written notice of all obligations payable with respect to the Properties through the termination date.

 

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SECTION 8.04     Final Accounting. Within sixty (60) days after termination, Manager shall deliver to Owner: (a) a final accounting, reflecting the balance of income and expenses on the Properties as of the date of termination; (b) all records, contracts, leases, receipts, deposits, unpaid bills, and other papers or documents which pertain to the Properties; and (c) all remaining funds held by Manager with respect to the Properties. In consideration of performing the services contemplated under the preceding sentence during such post-termination period, provided this Agreement is not terminated pursuant to Section 8.01(c). During the Final Accounting period, Owner shall pay Manager an accounting fee equal to $50,000.00 per month.

 

SECTION 8.05     Manager’s Retention of Copies. Manager shall be entitled to retain copies of all documents referred to in Section 8.04.

 

SECTION 8.06     Survival of Obligations. All obligations of the parties hereunder, as to which performance is contemplated to occur after termination, shall survive termination of this Agreement. Without limiting the generality of the foregoing, all representations and warranties of the parties contained herein and all provisions of this Agreement that require Owner to have insured or to defend, reimburse, or indemnify Manager shall survive the termination of this Agreement; and if Manager is or becomes involved in any proceeding or litigation by reason of having been Owner’s agent, such provisions shall apply as if this Agreement were still in effect.

 

ARTICLE IX

COVENANTS

 

SECTION 9.01    Non-Competition; Non-Solicitation.

 

(a)    So long as this Agreement remains in effect, and for a period of eighteen (18) months commencing on the Call Right Closing or a termination of this Agreement pursuant to Subsections (a)(ii), (c), (e) or (f) of Section 8.01 of this Agreement (the “Restricted Period”), each Manager Equityholder shall not, and shall not permit any of its Affiliates under a Manager Equityholder’s control to, directly or indirectly, (i) engage in or assist others engaging in the Business in the States in North America in which the REIT or the OP then owns Properties (the “Territory”), (ii) be or become an officer, director, stockholder, investor, beneficiary, promoter owner, co-owner, Affiliate, partner, joint venturer, member, employee, agent, representative, consultant, advisor, manager of or otherwise render any material services to or have an material interest in any Person that engages directly or indirectly in the Business in the Territory in any material capacity, or (iii) intentionally interfere in any material respect with the business relationships (whether formed prior to or after the date of this Agreement, but only if such Manager Equityholder has actual knowledge of such relationship) between Owner and customers or suppliers of Owner. Notwithstanding the foregoing, such Manager Equityholder may (A) directly or indirectly engage in or assist others engaging in the Business in the Territory pursuant to any management agreements in effect as of the date of this Agreement; (B) own, directly or indirectly, solely as an investment, securities of any Person if such Manager Equityholder is not a controlling Person of, or a member of a group which controls, such Manager Equityholder and does not, directly or indirectly, own five percent (5%) or more of any class of securities of such Person and/or (B) own equity interests in the REIT, the OP or its Affiliates or continue to be involved in the management of or be an employee of the REIT or the OP.

 

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(b)    During the Restricted Period, each Manager Equityholder shall not, and shall not permit any of its Affiliates to, directly or indirectly, hire or solicit any employee of Owner or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees.

 

(c)    During the Restricted Period, each Manager Equityholder shall not, and shall not permit any of its Affiliates to, directly or indirectly, solicit or entice, or attempt to solicit or entice, any clients or customers of Owner for purposes of diverting their business or services from Owner.

 

(d)    Each Manager Equityholder acknowledges and agrees that a breach or threatened breach of this Section 9.05 may give rise to irreparable harm to Owner, for which monetary damages may not be an adequate remedy, and hereby agrees that in the event of a breach or threatened breach by any Manager Equityholder of any such obligations, Owner shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to seek equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).

 

(e)    Each Manager Equityholder acknowledges that the restrictions contained in this Section 9.05 are reasonable and necessary to protect the legitimate interest of Owner and constitute a material inducement to Owner to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in this Section 9.05 should ever be adjudicated to exceed the time, geographic, product or service, or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Law. The covenants contained in this Section 9.05 and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction. Each Manager Equityholder agrees to enter into an agreement containing similar restrictive covenants in the event this Agreement is terminated.

 

SECTION 9.02     Exclusivity. So long as this Agreement remains in effect, the Manager shall not provide any similar services for any property not owned by Owner or receive any income other than the payments by Owner to Manager pursuant to this Agreement without the prior written consent of the OP, which may be withheld in its reasonable discretion.

 

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SECTION 9.03     Financial Statements. So long as this Agreement remains in effect, the Manager shall (and, to the extent required, shall direct the General Partner to) cooperate with the Adviser, the REIT and the OP to facilitate the timely preparation of any required financial statements, including any required to be publicly filed by an affiliate of the REIT or a company managed by the Adviser.

 

ARTICLE X

SUBCONTRACTING

 

SECTION 10.01    Construction. Manager is authorized to subcontract or delegate any of its responsibilities relating to construction and rehabilitation of the Properties hereunder, other than inspection and oversight, to any third-party; provided, that such third-party is approved by the Investment Committee if such construction or rehabilitation work is reasonably likely to cost in excess of $30,000.00 per Property and that such third-party executes a an agreement which includes an express obligation to comply with the terms of this Agreement applicable to the Properties it will manage, in form and substance satisfactory to Owner and further provided that the Manager adequately oversees the third party in accordance with the Standard of Care.

 

SECTION 10.02     Other Services. Other than as described in Section 10.01, Manager is not authorized to subcontract or delegate any of its responsibilities hereunder to any other person or entity without the prior written consent of the Board of Directors of the REIT and the Investment Committee. For the avoidance of doubt, in the event Manager subcontracts or delegates its responsibilities pursuant to Section 10.01, Manager shall retain its responsibility of oversight of such subcontracted third-parties in accordance with the Standard of Care.

 

ARTICLE XI

MISCELLANEOUS

 

SECTION 11.01     NOTICES. All notices or other communications required or permitted by this Agreement shall be in writing and shall be deemed to have been duly received (i) if given by electronic mail, on the date of delivery, (ii) if given by certified or registered mail, return receipt requested, postage prepaid, three (3) Business Days after being deposited in the U.S. mails and (iii) if given by courier or other means, when received or personally delivered, and, in any such case, addressed as follows:

 

If to Owner:

 

NexPoint Homes Trust, Inc.

300 Crescent Court

Suite 700

Dallas, Texas 75201

Attention: Brian Mitts

Email: BMitts@nexpoint.com

 

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with a copy to:

 

NexPoint Advisors, L.P.

300 Crescent Court

Suite 700

Dallas, Texas 75201

Attention: D.C. Sauter

Email: DSauter@nexpoint.com

 

and

 

Winston & Strawn LLP

2121 North Pearl Street

Suite 900

Dallas, Texas 75201

Attention: Charles T. Haag

Email: chaag@winston.com

 

If to Manager:

 

HomeSource Operations LLC

11818 Westbranch Parkway

Davidson, North Carolina 28036

Attn: Randy Hagedorn

Email: randy.hagedorn@renthomesource.com

 

and

 

Vaisey Nicholson & Nearpass, PLLC

155 Clinton Square

Rochester, New York 14604

Attn: Jeffrey A. Vaisey

Email: jvaisey@vnnlaw.com

 

or to such other addresses as may be specified by any such person to the other person pursuant to notice given by such person in accordance with the provisions of this Section 11.01.

 

SECTION 11.02    GOVERNING LAW; WAIVER OF JURY TRIAL. THE PROVISIONS OF THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AS AT THE TIME IN EFFECT, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THE PARTIES TO THIS AGREEMENT HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF DELAWARE, INCLUDING ANY APPELLATE COURTS THEREOF. THE PARTIES ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

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SECTION 11.03     ENTIRE AGREEMENT. This Agreement sets forth the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersedes any and all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof.

 

SECTION 11.04     Amendment; MODIFICATION. This Agreement shall not be amended, supplemented, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by the parties hereto, or their respective successors or assignees; provided, that upon the acquisition or disposition of any Property, Schedule A shall be automatically and without any further action by the parties hereto amended to reflect such acquisition or disposition of Property; provided further, that Owner shall deliver a revised Schedule A to Manager as soon as reasonably practicable and in accordance with Section 11.01 above that reflects such acquisition or disposition of Property.

 

SECTION 11.05     SEVERABILITY.  The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

 

SECTION 11.06     CONSTRUCTION. EACH OF THE PARTIES HERETO HAS HAD THE BENEFIT OF LEGAL COUNSEL OF ITS OWN CHOICE AND HAS BEEN AFFORDED AN OPPORTUNITY TO REVIEW THIS AGREEMENT WITH ITS LEGAL COUNSEL. THIS AGREEMENT SHALL BE CONSTRUED AS IF JOINTLY DRAFTED BY OWNER AND MANAGER. HEADINGS FOR SECTIONS, SUBSECTIONS, AND OTHER PARTS OF THIS AGREEMENT ARE FOR CONVENIENCE OF REFERENCE ONLY AND SHALL NOT CONSTITUTE A PART OF THIS AGREEMENT FOR ANY OTHER PURPOSE OR BE GIVEN ANY SUBSTANTIVE EFFECT.

 

SECTION 11.07     COUNTERPARTS. This Agreement and any amendments, waivers, consents, or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile, scanned pages or electronic signature shall be effective as delivery of a manually executed counterpart to this Agreement.

 

SECTION 11.08     Transferability; Successors and Assigns; Third-Party Beneficiary. This Agreement is not transferable by Manager. The rights of Owner hereunder are transferable to any of its respective Affiliates upon no less than ten (10) days’ prior written notice to Manager. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The parties hereto acknowledge that the REIT is an express third-party beneficiary for purposes of, and may enforce any provisions of, Article IX.

 

25

 

 

SECTION 11.09     CONFIDENTIALITY. No party to this Agreement will disclose the terms of this Agreement to any third party without the consent of the other parties hereto, except as required by securities or other applicable laws. Notwithstanding the above provisions, each party may disclose the terms of this Agreement (i) in connection with the requirements of a public offering or securities filing, (ii) to accountants, banks, and financing sources (both debt and equity) and their advisors, (iii) in connection with the enforcement of this Agreement or rights under this Agreement, or (iv) in connection with a merger or acquisition (whether by an equity or asset transfer), or the like.

 

[Signature page follows]

 

26

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this MANAGEMENT AGREEMENT as of the date first written above.

 

 

	 	NEXPOINT SFR OPERATING 	 
	 	PARTNERSHIP, L.P.,	 
	 	a Delaware limited partnership	 
	 	 	 	 
	 	 	 	 
	 	By:	/s/ Brian Mitts	 
	 	Name:	Brian Mitts	 
	 	Title:	Chief Financial Officer,	 
	 	Treasurer and Assistant Secretary	 
	 	 	 	 
	 	 	 	 
	 	HOMESOURCE OPERATIONS, LLC,	 
	 	a Delaware limited liability company	 
	 	 	 	 
	 	 	 	 
	 	By:	/s/ Randy Hagedorn	 
	 	Name:	Randy Hagedorn	 
	 	Title:	President and CEO	 

 

 

[Signature Page to Management Agreement]

 

 

 

 

 

 

Schedule A

 

The Properties

 

[Omitted]

 

 

 

 

 

 

 

 

Schedule B

Account Agency Agreement

 

[Omitted]

 

 

 

 

 

 

 

 

Schedule C

Financial Records and Reports

 

[Omitted]

 

 

 

 

 

 

 

 

Schedule D

Additional Covenants

 

[Omitted]

 

 

 

 

 

 

 

 

Schedule E

Approved Operating Budget

 

[Omitted]

 

 

 

 

 

 

 

 

Schedule F

Approved Guidelines

 

[Omitted]

 

 

 

 

 

 

Schedule G

Defined Terms

 

Capitalized terms used in this Agreement but not otherwise defined herein have the following definitions:

 

“Affiliate” of any Person means (i) any other individual or entity that is, directly or indirectly, (A) in Control of the applicable Person, (B) under the Control of the applicable Person or (C) under common Control with the applicable Person; (ii) any individual that is a director or officer of the applicable Person or (iii) any individual that is a director or officer of any entity described in clause (i) of this definition.

 

“AML Laws” means applicable federal anti-money laundering laws and regulations including 18 U.S.C. 1956 and 1957, as amended.

 

“Bankruptcy Code” means the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq., as amended from time to time.

 

“Bankruptcy Event” with respect to any Person, means the occurrence of any of the following:

 

(a)    Such Person voluntarily files for bankruptcy protection under the Bankruptcy Code.

 

(b)    Such Person voluntarily becomes subject to any reorganization, receivership, insolvency proceeding, or other similar proceeding pursuant to any other federal or state law affecting debtor and creditor rights.

 

(c)    Any Property becomes an asset in a voluntary bankruptcy or becomes subject to any voluntary reorganization, receivership, insolvency proceeding, or other similar voluntary proceeding pursuant to any other federal or state law affecting debtor and creditor rights.

 

(d)    An order of relief is entered against such Person pursuant to the Bankruptcy Code or other federal or state law affecting debtor and creditor rights in any involuntary bankruptcy proceeding initiated or joined in by a Related Party. If such Person, any general partner of such person if such Person is a general partnership, or any Related Party has solicited creditors to initiate or participate in such a proceeding, regardless of whether any of the creditors solicited actually initiates or participates in the proceeding, then such proceeding will be considered as having been initiated by a Related Party.

 

(e)    An involuntary bankruptcy or other involuntary insolvency proceeding is commenced against such Person but only if such Person has failed to use commercially reasonable efforts to dismiss such proceeding or has consented to such proceeding. “Commercially reasonable efforts” will not require any direct or indirect interest holders in such Person to contribute or cause the contribution of additional capital to such Person.

 

 

 

 

If such Person is a general partnership, any of the following occur:

 

(a)    Any general partner of such Person voluntarily files for bankruptcy protection under the Bankruptcy Code.

 

(b)    Any general partner of such Person voluntarily becomes subject to any reorganization, receivership, insolvency proceeding, or other similar proceeding pursuant to any other federal or state law affecting debtor and creditor rights.

 

(c)    An order of relief is entered against any general partner of such Person pursuant to the Bankruptcy Code or other federal or state law affecting debtor and creditor rights in any involuntary bankruptcy proceeding initiated or joined in by a Related Party.

 

(d)    An involuntary bankruptcy or other involuntary insolvency proceeding is commenced against any general partner of such Person but only if such Person or such general partner of such Person has failed to use commercially reasonable efforts to dismiss such proceeding or has consented to such proceeding. “Commercially reasonable efforts” will not require any direct or indirect interest holders in such Person or such general partner of such Person to contribute or cause the contribution of additional capital to such Person.

 

“Business” means the business of acquiring, developing, renovating, leasing and operating single family rental properties.

 

“Business Day” means any day other than a Saturday, a Sunday, or any other day on which Owner or the national banking associations are not open for business.

 

"Call Right Closing” has the meaning set forth in the Side Letter.

 

“Control” means to possess, directly or indirectly through one or more intermediate entities, the power to direct or cause the direction of the management, operation, or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, including the power to elect a majority of the directors or trustees of a corporation or trust, as the case may be.

 

For example, a trustee of a trust is a Person that Controls that trust; a general partner in a limited partnership is a Person that Controls that limited partnership; a managing member or a non- member manager of a limited liability company is a Person that Controls that limited liability company; members of a limited liability company with a voting interest that permits them (individually or collectively) to direct or control the decisions of the limited liability company are Persons that Control that limited liability company; every general partner in a general partnership or member in a joint venture is a Person that Controls that entity; a shareholder of a corporation that holds 50% or more of the shares in the corporation (whether individually or in the aggregate with its Affiliates) is a Person that Controls that corporation.

 

“Economic Sanctions Laws” means the foreign assets control regulations, 31 C.F.R. Chapter V, as amended, and any amending federal legislation or executive order relating thereto, as administered by OFAC.

 

 

 

 

“Eligible Lease” means, unless otherwise approved by Owner, a written Lease that satisfies all of the following characteristics:

 

	 	
			(a)

				
			It is on a form approved by Owner.

			

 

	 	
			(b)

				
			It is executed by an Eligible Tenant and Owner, or Manager on behalf of Owner (or, in the case of a Lease existing on the Effective Date, such Lease has been assigned to Owner).

			

 

	 	
			(c)

				
			It has a rental rate and terms consistent with existing local market rates and terms.

			

 

	 	
			(d)

				
			As of the date the Lease was executed, the Lease had an initial term of at least 6 months and not more than 2 years.

			

 

	 	
			(e)

				
			It complies with all applicable law in all material respects and includes all disclosures required by applicable law.

			

 

	 	
			(f)

				
			It covers 100% of the square footage of the applicable Property or Unit.

			

 

	 	
			(g)

				
			It does not include any purchase option, right of refusal, right of first offer or other similar interest in any Property in favor of any tenant or other Person.

			

 

	 	
			(h)

				
			In the case of leases on Properties where a Lender has a loan secured directly or indirectly by a Property, lease terms must meet all Lender requirements.

			

 

“Eligible Tenant” means a bona fide third-party lessee of a Property who satisfies each of the following criteria:

 

	 	
			(i)

				
			Manager has verified, based on bona fide written documentation, that the tenant has sufficient financial resources to satisfy its obligations under the Lease for the Property.

			

 

	 	
			(j)

				
			The tenant is not subject to an ongoing Bankruptcy Event as such date of initial screening (or if not so initially screened, as of the Effective Date).

			

 

	 	
			(k)

				
			The tenant is not an Affiliate of Manager or any Immediate Family Member of any of the foregoing.

			

 

“Event of Default” means an event of default under the Loan Documents of which Manager has received written notice or has actual knowledge.

 

 

 

 

“Fixtures” means all property owned by Owner which is attached to the Land or the Improvements so as to constitute a fixture under applicable law, including: machinery, equipment, engines, boilers, incinerators and installed building materials; systems and equipment for the purpose of supplying or distributing heating, cooling, electricity, gas, water, air or light; antennas, cable, wiring and conduits used in connection with radio, television, security, fire prevention or fire detection or otherwise used to carry electronic signals; telephone systems and equipment; elevators and related machinery and equipment; fire detection, prevention and extinguishing systems and apparatus; security and access control systems and apparatus; plumbing systems; water heaters, ranges, stoves, microwave ovens, refrigerators, dishwashers, garbage disposers, washers, dryers and other appliances; light fixtures, awnings, storm windows and storm doors; pictures, screens, blinds, shades, curtains and curtain rods; mirrors; cabinets, paneling, rugs and floor and wall coverings; fences, trees and plants; swimming pools; and exercise equipment.

 

“FHFA” means the Federal Housing Finance Authority.

 

“FHFA SCP List” means the Suspended Counterparty List maintained by the FHFA which is currently published at https://www.fhfa.gov/SupervisionRegulation/LegalDocuments/Pages/SuspendedCounterpartyProgram.aspx.

 

"General Partner” means NexPoint SFR OP GP, LLC, a Delaware limited liability company.

 

“Governmental Authority” means any board, commission, department, agency or body of any municipal, county, state or federal governmental unit, or any subdivision of any of them, which has or acquires jurisdiction over any Property, or the use, operation or improvement of any Property, or over Manager.

 

“Hazardous Materials” means petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives; flammable materials; radioactive materials; polychlorinated biphenyls (PCBs) and compounds containing them; lead and lead- based paint; asbestos or asbestos containing materials in any form that is or could become friable; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which on any Property is prohibited by any Governmental Authority; any substance that requires special handling and any other material or substance now or in the future that (i) is defined as a “hazardous substance,” “hazardous material,” “hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,” or “pollutant” by or within the meaning of any Hazardous Materials Law, or (ii) is regulated in any way by or within the meaning of any Hazardous Materials Law.

 

“Hazardous Materials Law” and “Hazardous Materials Laws” means any and all federal, state and local laws, ordinances, regulations and standards, rules, policies and other governmental requirements, administrative rulings and court judgments and decrees in effect now or in the future, including all amendments, that relate to Hazardous Materials or the protection of human health or the environment and apply to Manager or to any Property. Hazardous Materials Laws include the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation Act, 49 U.S.C. Section 5101 et seq., and their state analogs.

 

 

 

 

“Immediate Family Members” means a Person’s spouse, parent (including step-parent), child (including stepchild), grandchild (including step-grandchild) or sibling (including step-siblings).

 

“Improvements” means the buildings, structures and improvements now constructed or at any time in the future constructed or placed upon the Land, including any future alterations, replacements and additions.

 

“Indebtedness” means (i) the principal of, (ii) interest at the fixed or variable rate set forth in a Note on the principal of, and (iii) all other amounts due at any time under a Note or any other Loan Document.

 

“Insurance” means Property Insurance, liability insurance and all other insurance that Owner requires Manager to maintain pursuant to this Agreement.

 

“Land” means the land described in any Exhibit A to the Security Instrument(s).

 

“Leases” means all present and future leases, subleases, licenses, concessions or grants or other possessory interests now or hereafter in force, whether oral or written, covering or affecting the Property, or any portion of the Property, and all modifications, extensions or renewals.

 

“Lender” means any lender providing a loan to Owner which is secured by a mortgage or deed of trust on any Property.

 

“Lien” means any mortgage, deed of trust, deed to secure debt, security interest or other lien or encumbrance on any Property or any direct or indirect ownership interest in Owner.

 

“Loan” means any loan provided by any Lender to Owner.

 

“Loan Documents” means all documents now or in the future executed by Owner in connection with any Loan.

 

“Manager Equityholder” means Randy Hagedorn, Adam Levinson and Rich Scola.

 

“Manager Principal” means any of the following: (i) any general partner of Manager (if Manager is a partnership), (ii) any manager or managing member of Manager (if Manager is a limited liability company), (iii) any Person (limited partner, member or shareholder) with a collective direct or indirect equity interest in Manager equal to or greater than 25% (if Manager is an entity), or (iv) any trustee of Manager (if Manager is a trust).

 

“Material Adverse Effect” means a material adverse effect on: (i) the Properties taken as a whole, (ii) the business, prospects, profits, operations or condition (financial or otherwise) of Manager, (iii) the enforceability, validity, perfection or priority of the Lien of any Loan Document, or (iv) the ability of Manager to perform any obligations under this Agreement.

 

 

 

 

“Mold” means mold, fungus, microbial contamination or pathogenic organisms.

 

“Non-U.S. Equity Holder” means any Person with a collective equity interest (whether direct or indirect) of 10% or more in Manager, and which is either (a) an individual who is not a citizen of the United States, or (b) an entity formed outside the United States.

 

“Note” means any Note (including any Amended and Restated Note, Consolidated, Amended and Restated Note, or Extended and Restated Note) evidencing the Indebtedness executed by Owner in favor of Lender, including all schedules, riders, allonges and addenda.

 

“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.

 

“OFAC Lists” means either one of the following:

 

	 	
			(l)

				
			The OFAC Specially Designated Nationals and Blocked Persons List.

			

 

	 	
			(m)

				
			The OFAC Consolidated Sanctions List.

			

 

“Person” means any natural person, sole proprietorship, corporation, general partnership, limited partnership, limited liability company, limited liability partnership, limited liability limited partnership, joint venture, association, joint stock company, bank, trust, estate, unincorporated organization, any federal, state, county or municipal government (or any agency or political subdivision thereof), endowment fund or any other form of entity.

 

“Personalty” means all of the following:

 

	 	
			(a)

				
			accounts (including deposit accounts) of Owner related to any Property.

			

 

	 	
			(b)

				
			equipment and inventory owned by Owner, which are used now or in the future in connection with the ownership, management or operation of the Land or Improvements or are located on the Land or Improvements, including furniture, furnishings, machinery, building materials, goods, supplies, tools, books, records (whether in written or electronic form) and computer equipment (hardware and software).

			

 

	 	
			(c)

				
			other tangible personal property owned by Owner which is used now or in the future in connection with the ownership, management or operation of the Land or Improvements or is located on the Land or in the Improvements, including ranges, stoves, microwave ovens, refrigerators, dishwashers, garbage disposers, washers, dryers and other appliances (other than Fixtures).

			

 

	 	
			(d)

				
			any service contracts relating to the Land or the Improvements.

			

 

 

 

 

	 	
			(e)

				
			any surveys, plans and specifications and contracts for architectural, engineering and construction services relating to the Land or the Improvements.

			

 

	 	
			(f)

				
			all other intangible property, general intangibles and rights relating to the operation of, or used in connection with, the Land or the Improvements, including all governmental permits relating to any activities on the Land and including subsidy or similar payments received from any sources, including a Governmental Authority.

			

 

	 	
			(g)

				
			any rights of Owner in or under letters of credit.

			

 

“Priority Repairs” means those repairs required to be performed under any Loan of which Manager has been given written notice by Owner.

 

“Prohibited Activity or Condition” means each of the following:

 

	 	
			(a)

				
			The presence, use, generation, release, treatment, processing, storage (including storage in above-ground and underground storage tanks), handling or disposal of any Hazardous Materials on or under a Property.

			

 

	 	
			(b)

				
			The transportation of any Hazardous Materials to, from or across a Property.

			

 

	 	
			(c)

				
			Any occurrence or condition on a Property, which occurrence or condition is or may be in violation of Hazardous Materials Laws.

			

 

The term “Prohibited Activity or Condition” excludes the safe and lawful use and storage of each of the following materials, so long as the materials are used, stored, handled, transported, and disposed of in compliance with Hazardous Materials Laws:

 

	 	
			(a)

				
			Prepackaged supplies, cleaning materials, and petroleum products customarily used in the operation and maintenance of comparable properties.

			

 

	 	
			(b)

				
			Cleaning materials, personal grooming items, and other items sold in pre- packaged containers for consumer use and used by tenants and occupants of residential units in the Properties.

			

 

	 	
			(c)

				
			Petroleum products used in the operation and maintenance of motor vehicles from time to time located on the Property’s parking areas.

			

 

“Prohibited Parties List” means any one or more of the following:

 

	 	
			(a)

				
			The OFAC Lists.

			

 

	 	
			(b)

				
			The FHFA SCP List.

			

 

 

 

 

“Property” means, individually, and “Properties” means, collectively, the residential real properties encumbered by the Security Instruments.

 

“Property Document” means each agreement relating to a Property and each other instrument binding on any Property, including any reciprocal easement agreement, declaration of covenants, conditions and restrictions and any condominium or homeowner’s association governing documents, rules and regulations.

 

“Property Jurisdiction” means the jurisdiction in which the Land is located for any particular Property.

 

“Regulatory Agreement” means any recorded or unrecorded agreement with a Regulatory Agreement Agency that encumbers any Property and which imposes use, occupancy and/or rent restrictions on any Property and/or its operation.

 

“Regulatory Agreement Agency” means a Governmental Authority, acting through any authorized representative, or any quasi-governmental authority, that is entitled to enforce the provisions of a Regulatory Agreement that encumbers any Property.

 

“Related Party” means all the following:

 

	 	
			(a)

				
			Manager.

			

 

	 	
			(b)

				
			Any general partner of Manager if Manager is a general partnership.

			

 

	 	
			(c)

				
			Any Person that holds, directly or indirectly, any ownership interest (including any shareholder, member or partner) in Manager, any general partner of Manager if Manager is a general partnership, or any Person that has a right to manage Manager or any general partner of Manager if Manager is a general partnership.

			

 

	 	
			(d)

				
			Any Person in which Manager or any general partner of Manager if Manager is a general partnership.

			

 

	 	
			(e)

				
			Any Person in which any partner, shareholder, or member of Manager or any general partner of Manager if Manager is a general partnership.

			

 

	 	
			(f)

				
			Any Person in which any Person holding an interest in Manager or any general partner of Manager if Manager is a general partnership.

			

 

	 	
			(g)

				
			Any creditor of Manager that is related by blood, marriage or adoption to Manager.

			

 

	 	
			(h)

				
			Any creditor of Manager or any general partner of Manager if Manager is a general partnership that is related to any partner, shareholder or member of, or any other Person holding an interest in, Manager or any general partner of Manager if Manager is a general partnership.

			

 

 

 

 

“Rent(s)” means all rents (whether from residential or non-residential space), revenues and other income of the Land or the Improvements, parking fees, laundry and vending machine income and fees and charges for food, health care and other services provided at the Property, whether now due, past due or to become due, and deposits forfeited by tenants.

 

“Rent Schedule” means a written schedule for the Properties showing the name of each tenant, and for each tenant, the space occupied, the lease expiration date, the rent payable for the current month, the date through which rent has been paid, and any related information requested by Owner. The Rent Schedule should be prepared using the template available from Owner, which may be revised from time to time, or in a format otherwise acceptable to Owner.

 

“Repairs” means all repairs made to the Properties, including all Priority Repairs.

 

“Restoration” is defined in Section 1.09(i) of Schedule D.

 

“Security Instrument” means the mortgage(s), deed(s) of trust, deed(s) to secure debt or other similar security instrument(s) encumbering one or more Properties and securing Owner’s performance of its Loan obligations.

 

"Side Letter” means that certain agreement, dated as of the date hereof, between the REIT, the OP, the Adviser, the Manager, the General Partner and the Manager Equityholders.

 

“Transfer” means any of the following: (i) a sale, assignment, transfer or other disposition or divestment of any direct or indirect interest in Manager, a Person that Controls Manager, or a Property (whether voluntary, involuntary or by operation of law), (ii) the granting, creating or attachment of a Lien, encumbrance or security interest (whether voluntary, involuntary or by operation of law), (iii) the issuance or other creation of an ownership interest in a legal entity, including a partnership interest, interest in a limited liability company or corporate stock, (iv) the withdrawal, retirement, removal or involuntary resignation of a partner in a partnership or a member or Manager in a limited liability company, (v) the merger, dissolution, liquidation, or consolidation of a legal entity or the reconstitution of one type of legal entity into another type of legal entity.

 

For purposes of defining the term “Transfer,” the term “partnership” means a general partnership, a limited partnership, a joint venture, a limited liability partnership, or a limited liability limited partnership and the term “partner” means a general partner, a limited partner, or a joint venturer.

 

“Transfer” does not include any of the following: (i) a conveyance of a Property at a judicial or non-judicial foreclosure sale under the Security Instrument, (ii) a Property becoming part of a bankruptcy estate by operation of law under the Bankruptcy Code, (iii) the filing or recording of a Lien against a Property for local taxes and/or assessments not then due and payable, or (iv) a sale, assignment, transfer or other disposition or divestment of any direct or indirect interest in Manager or any owner of direct or indirect ownership interests in Manager.

 

 

 

 

“Unit” means each separate legal address comprising all or part of a Property.

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