Document:

Unassociated Document

PR Draft 5/24/11

 

TAX PROTECTION AGREEMENT

 

This TAX PROTECTION AGREEMENT (this “Agreement”) is entered into as of [_____], 2011 by and among American Realty Capital Properties, Inc., a Maryland corporation (the “REIT”), ARC Properties Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), each Protected Partner identified as a signatory on Schedule I, as amended from time to time.

 

RECITALS

 

WHEREAS, the REIT, the OP and certain contributing members, including the Protected Partners, have entered into that certain Contribution Agreement, dated as of February 4, 2011 (the “Contribution Agreement”) and various assignment and assumption and other agreements, pursuant to which the REIT desires to consolidate the ownership of a portfolio of properties currently owned, directly or indirectly, by certain limited liability companies, by contributing the interests in such limited liability companies to the Operating Partnership (the “Contribution”) in exchange for, among other things, units of limited partnership interest in the Operating Partnership (“OP Units”);

 

WHEREAS, it is intended that, except as set forth in the Contribution Agreement, for U.S. federal income tax purposes, the Contribution will be treated as a tax-free contribution by the Protected Partners to the Operating Partnership of the Contributed Interests in exchange for OP Units, under Code Section 721 (as defined below);

 

WHEREAS, the Contribution relates to the proposed initial public offering of the common stock of the REIT, par value $.01 per share, following which the REIT will operate as an externally managed and advised real estate investment trust within the meaning of Code Section 856; and

 

WHEREAS, as provided in Section 2.04(g) of the Contribution Agreement and in consideration for the agreement of the Protected Partners to consummate the Contribution, the Operating Partnership, the REIT and the Protected Partners are entering into this Agreement;

 

NOW, THEREFORE, in consideration of the promises and mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE 1

 

DEFINED TERMS

 

   Section 1.01          For purposes of this Agreement the following terms shall apply:

 

(a)           “50% Termination” has the meaning set forth in Section 1.01(ee).

 

(b)           “Affiliate” means, with respect to any Person, any Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, “control” when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

  

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(c)           “Agreement” has the meaning set forth in the Preamble.

 

(d)           “Closing Date” has the meaning assigned to it in the Contribution Agreement.

 

(e)           “Code” means the Internal Revenue Code of 1986, as amended.

 

(f)            “Collateral” has the meaning set forth in the definition of “Qualified Liability.”

 

(g)           “Contribution” has the meaning set forth in the Recitals.

 

(h)           “Contribution Agreement” has the meaning set forth in the Recitals.

 

(i)            “Debt Gross Up Amount” has the meaning set forth in definition of “Make Whole Amount.”

 

(j)            “Debt Notification Event” means, with respect to an Qualified Liability, any transaction in which such liability shall be refinanced, otherwise repaid (excluding for this purpose, scheduled payments of principal occurring prior to the maturity date of such liability), or guarantied by any of the REIT, the Operating Partnership, or one or more of their Affiliates, or guarantied by one or more partners of the Operating Partnership.

 

(k)           “Exchange” has the meaning set forth in Section 2.01(b).

 

(l)            “Fundamental Transaction” means a merger, consolidation or other combination of the Operating Partnership with or into any other entity, a transfer of all or substantially all of the assets of the Operating Partnership, any reclassification, recapitalization or change of the outstanding equity interests of the Operating Partnership, or a conversion of the Operating Partnership into another form of entity.

 

(m)          “Gross Up Amount” has the meaning set forth in definition of “Make Whole Amount.”

 

(n)           “Guarantied Liability” means any Qualified Liability that is guarantied, in whole or in part, by one or more Protected Partners in accordance with this Agreement.

 

(o)           “Guaranty Permissible Liability” means a liability with respect to which the lender permits a guaranty.

 

(p)           “Guaranty Opportunity” has the meaning set forth in Section 2.04(b).

 

  

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(q)           “Make Whole Amount” means: (a) with respect to any Protected Partner that recognizes gain under Section 704(c) of the Code as a result of a Tax Protection Period Transfer, the sum of (i) the product of (x) the income and gain recognized by such Protected Partner under Section 704(c) of the Code in respect of such Tax Protection Period Transfer (taking into account any adjustments under Code Section 743 to which such Protected Partner is entitled) multiplied by (y) the Make Whole Tax Rate, plus (ii) an amount equal to the combined federal, applicable state and local income taxes (calculated using the Make Whole Tax Rate) imposed on a Protected Partner as a result of the receipt by a Protected Partner of a payment under Section 2.02 (the “Gross Up Amount”); provided, however, that the Gross Up Amount shall be computed without regard to any losses, credit, or other tax attributes that a Protected Partner might have that would reduce its actual tax liability; and (b) with respect to any Protected Partner that recognizes gain as a result of a breach by the Operating Partnership of the provisions of Section 2.04 hereof, the sum of (i) the product of (x) the income and gain recognized by such Protected Partner by reason of such breach, multiplied by (y) the Make Whole Tax Rate, plus (ii) an amount equal to the combined federal, applicable state and local income taxes (calculated using the Make Whole Tax Rate) imposed on a Protected Partner as a result of the receipt by a Protected Partner of a payment under Section 2.04 (the “Debt Gross Up Amount”); provided, however, that the Debt Gross Up Amount shall be computed without regard to any losses, credit, or other tax attributes that a Protected Partner might have that would reduce its actual tax liability. For purposes of calculating the amount of Section 704(c) gain that is allocated to a Protected Partner, (i) subject to clause (ii) below, any “reverse Section 704(c) gain” allocated to such partner pursuant to Treasury Regulations Section 1.704-3(a)(6) shall not be taken into account, and (ii) if, as a result of adjustments to the Gross Asset Value (as defined in the OP Agreement) of the Protected Properties pursuant to clause (b) of the definition of Gross Asset Value as set forth in the OP Agreement, all or a portion of the gain recognized by the Operating Partnership that would have been Section 704(c) gain without regard to such adjustments becomes or is treated as “reverse Section 704(c) gain” or Section 704(b) gain under Code Section 704, then such gain shall continue to be treated as Section 704(c) gain; provided that the total amount of 704(c) gain and income taken into account for purpose of calculating the Make Whole Amount shall not exceed the initial Section 704(c) gain amount as of the Closing Date (whether or not equal to the estimated amount set forth on Exhibit B).

 

(r)            “Make Whole Tax Rate” means, with respect to a Protected Partner who is entitled to receive a payment under Section 2.02 or Section 2.04, the highest combined statutory federal, state and local tax rate in respect of the income or gain that gave rise to such payment, taking into account the character of the income and gain in the hands of such Protected Partner (reduced, in the case of federal taxes, by the deduction allowed for income taxes paid to a state or locality) for the taxable year in which the event that gave rise to such payment under Section 2.02 or Section 2.04 occurred. Notwithstanding the foregoing, if a Protected Partner demonstrates to the reasonable satisfaction of the Operating Partnership that such Protected Partner is not entitled to a federal income tax deduction for all or a portion of the income taxes paid to a state or locality, the Make Whole Tax Rate applicable to such Protected Partner shall be reduced only by the deduction, if any, the Protected Partner is entitled to take for such taxes.

 

(s)           “OP Agreement” means the Agreement of Limited Partnership of the Operating Partnership, as amended from time to time.

 

  

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(t)           “OP Units” has the meaning set forth in the Recitals.

 

(u)          “Operating Partnership” has the meaning set forth in the Preamble.

 

(v)          “Pass Through Entity” means a partnership, grantor trust, or S corporation for U.S. federal income tax purposes.

 

(w)         “Permitted Disposition” means a sale, exchange or other disposition of OP Units (i) by a Protected Partner: (a) to such Protected Partner’s children, spouse or issue; (b) to a trust for such Protected Partner or such Protected Partner’s children, spouse or issue; (c) in the case of a trust which is a Protected Partner, to its beneficiaries, or any of them, whether current or remainder beneficiaries; (d) to a revocable inter vivos trust of which such Protected Partner is a trustee; (e) in the case of any partnership or limited liability company which is a Protected Partner, to its partners or members; and/or (f) in the case of any corporation which is a Protected Partner, to its shareholders, and (ii) by a party described in clauses (a), (b), (c) or (d) to a partnership, limited liability company or corporation of which the only partners, members or shareholders, as applicable, are parties described in clauses (a), (b), (c) or (d); provided, that for purposes of the definition of Tax Protection Period, such Protected Partner shall be treated as continuing to own any OP Units which were subject to a Permitted Disposition unless and until there has been a sale, exchange or other disposition of such OP Units by a permitted transferee which is not another Permitted Disposition.

 

(x)           “Person” means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity.

 

(y)           “Protected Partner” means: (i) each signatory on Schedule I attached hereto, as amended from time to time; (ii) any person who holds OP Units and who acquired such OP Units from another Protected Partner in a transaction in which such person’s adjusted basis in such OP Units, as determined for Federal income tax purposes, is determined, in whole or in part, by reference to the adjusted basis of the other Protected Partner in such OP Units; and (iii) with respect to a Protected Partner that is Pass Through Entity, and solely for purposes of computing the amount to be paid under Section 2.02 or Section 2.04 with respect to such Protected Partner, any person who (y) holds an interest in such Protected Partner, either directly or through one or more Pass Through Entities, and (z) is required to include all or a portion of the income of such Protected Partner in its own gross income.

 

(z)           “Protected Property” means each property identified on Exhibit A hereto and each property acquired in Exchange for a Protected Property as set forth in Section 2.01(b).

 

(aa)         “Qualified Liability” means either:

 

(i)           A liability of the Operating Partnership (or of an entity whose separate existence from the Operating Partnership is disregarded for Federal income tax purposes) with respect to which all of the following requirements are satisfied:

 

(A)           the liability is secured by real property or other assets (the “Collateral”) owned directly or indirectly by the Operating Partnership (or by an entity whose separate existence from the Operating Partnership is disregarded for federal income tax purposes);

 

  

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(B)           on the date on which the Operating Partnership designated such liability as a Qualified Liability, the fair market value (as reasonably determined in good faith by the Operating Partnership) of the Collateral was at least 140% times the outstanding principal amount (and any accrued and unpaid interest) of the liability and any other Qualified Liabilities secured by such Collateral at such time, provided that if interest on such liability is not required to be paid at least annually or if the documents evidencing such liability permit the borrower to borrow additional amounts that are secured by the Collateral, the outstanding principal amount of such liability shall include the maximum amount that could be so added to the principal amount of such liability without a default, provided, however, if notwithstanding the Operating Partnership’s commercially reasonable efforts, it is unable to make available the Guarantee Opportunities required by this Agreement, 130% shall be substituted for 140% as set forth above;

 

(C) the liability constitutes “qualified nonrecourse financing” as defined in Code Section 465(b)(6) with respect to the Protected Partners;

 

(D) other than guaranties by the Protected Partners, no other person has executed any guaranties with respect to such liability; and

 

(E) the Collateral does not provide security for another liability (other than another Qualified Liability) that ranks senior to, or pari passu with, the liability described in clause (A) above.

 

For purposes of determining whether clause (B) has been satisfied in situations where one or more potential Qualified Liabilities are secured by more than one item of Collateral, the Operating Partnership shall allocate such liabilities among such items of Collateral in proportion to their relative fair market values (as reasonably determined in good faith by the Operating Partnership); or

 

(ii)         A liability of the Operating Partnership that

 

(A)           is not secured by any of the assets of the Operating Partnership and is a general, recourse obligation of the Operating Partnership, and

 

(B)           is not provided by a lender that has an interest in the Operating Partnership or is related to the Operating Partnership within the meaning of Code Section 465(b)(3)(C).

 

(bb)         “Required Liability Amount” means, with respect to each Protected Partner, 110% of such Protected Partner’s estimated “negative tax capital account” as of the Closing Date, a current estimate of which is set forth on Exhibit C hereto for each such Protected Partner.

 

(cc)         “REIT” has the meaning set forth in the Preamble.

 

  

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(dd)         “Section 2.4 Notice” has the meaning set forth in Section 2.04(c).

 

(ee)         “Tax Protection Period” means the period commencing on the Closing Date and ending on the tenth (10th) anniversary of the Closing Date; provided, however, that such period shall end with respect to any Protected Partner to the extent that such Protected Partner owns less than fifty percent (50%) of the OP Units originally received by the Protected Partner in the Contribution, disregarding the sale, exchange or other disposition of any such OP Units sold, exchanged or otherwise disposed of by the Protected Partner in a Permitted Disposition (such an event, a “50% Termination”).

 

(ff)         “Tax Protection Period Transfer” has the meaning set forth in Section 2.01(a).

 

(gg)         “Transfer” means any direct or indirect sale, exchange, transfer or other disposition, whether voluntary or involuntary.

 

(hh)         “Treasury Regulations” means the income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

 

ARTICLE 2

 

TAX PROTECTIONS

 

Section 2.01             Taxable Transfers.

 

(a)           Unless the Partners’ Representative expressly consents in writing to a Tax Protection Period Transfer (for the avoidance of doubt, no vote in favor of a Tax Protection Period Transfer by the Partners’ Representative or any of its Affiliates or by a Protected Partner, in each case in its capacity as owner shares of the REIT or OP Units, shall constitute consent), during the Tax Protection Period, the Operating Partnership shall indemnify the Protected Partners as set forth in Section 2.02 if the Operating Partnership or any entity in which the Operating Partnership holds a direct or indirect interest shall cause or permit (i) any Transfer of all or any portion of a Protected Property (including any interest therein or in the entity owning, directly or indirectly, the Protected Property) in a transaction that would result in the recognition of taxable income or gain by any Protected Partner under Code Section 704(c), or (ii) any Fundamental Transaction that would result in the recognition of taxable income or gain to any Protected Partner (a Fundamental Transaction and a Transfer, collectively a “Tax Protection Period Transfer”).

 

(b)           Section 2.01(a) shall not apply to any Tax Protection Period Transfer of a Protected Property (including any interest therein or in the entity owning, directly or indirectly, the Protected Property): (i) in a transaction in which no gain is required to be recognized by a Protected Partner (an “Exchange”), including a transaction qualifying under Section 1031 or Section 721 (or any successor statutes) of the Code; provided, however, that any property acquired by the Operating Partnership in the Exchange shall remain subject to the provisions of this ARTICLE 2 in place of the exchanged Protected Property for the remainder of the Tax Protection Period; (ii) as a result of the condemnation or other taking of any Protected Property by a governmental entity in an eminent domain proceeding or otherwise, provided that the Operating Partnership shall use commercially reasonable efforts to structure such disposition as either a tax-free like-kind exchange under Section 1031 or a tax-free reinvestment of proceeds under Section 1033, provided that in no event shall the Operating Partnership be obligated to acquire or invest in any property that it otherwise would not have acquired or invested in.

 

  

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(c)           For any taxable Transfer of all or any portion of any property of the Operating Partnership which is not a Tax Protection Period Transfer, the Operating Partnership shall use commercially reasonable efforts to cooperate with the Limited Partners to minimize any taxes payable by the Limited Partners in connection with any such Transfers.

 

Section 2.02             Indemnification for Taxable Transfers.

 

(a)           In the event of a Tax Protection Period Transfer described in Section 2.01(a), each Protected Partner shall, within 30 days after the closing of such Tax Protection Period Transfer, receive from the Operating Partnership an amount of cash equal to the estimated Make Whole Amount applicable to such Tax Protection Period Transfer. If it is later determined that the true Make Whole Amount applicable to a Protected Partner exceeds the estimated Make Whole Amount applicable to such Protected Partner, then the Operating Partnership shall pay such excess to such Protected Partner within 90 days after the closing of the Tax Protection Period Transfer, and if such estimated Make Whole Amount exceeds the true Make Whole Amount, then such Protected Partner shall promptly refund such excess to the Operating Partnership, but only to the extent such excess was actually received by such Protected Partner.

 

(b)           Notwithstanding any provision of this Agreement to the contrary, the sole and exclusive rights and remedies of any Protected Partner under Section 2.01(a) shall be a claim against the Operating Partnership for the Make Whole Amount as set forth in this Section 2.02, and no Protected Partner shall be entitled to pursue a claim for specific performance of the covenants set forth in Section 2.01(a) or bring a claim against any person that acquires a Protected Property from the Operating Partnership in violation of Section 2.01(a).

 

Section 2.03             Section 704(c) Gains; Non-recourse Liability Allocation Method.

 

(a)           A good faith estimate of the initial amount of Section 704(c) gain allocable to each Protected Partner as of the Closing Date is set forth on Exhibit B hereto. The parties acknowledge that the initial amount of such Section 704(c) gain may be adjusted over time as required by Code Section 704(c) and the Treasury Regulations promulgated thereunder.

 

(b)           The Operating Partnership shall use, and shall cause any other entity in which the Operating Partnership has a direct or indirect interest to use, the “traditional method” under Treasury Regulations Section 1.704-3(b) for purposes of making allocations under Code Section 704(c) with respect to each Protected Property to take into account the book-tax disparities as of the effective time of the Contribution with respect to such Protected Property and with respect to any revaluation of such Protected Property pursuant to Treasury Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(2)(iv)(g) and 1.704-3(a)(6) with no “curative allocations,” “remedial allocations” or adjustments to other items to offset the effect of the “ceiling rule.”

 

  

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(c)           The Operating Partnership will first allocate to each Protected Partner an amount of “excess nonrecourse liabilities,” as defined in Treasury Regulations Section 1.752-3(a)(3), up to the amount of Section 704(c) gain that is allocable to such Protected Partner with respect to each property acquired by the Operating Partnership pursuant to the Contribution to the extent that each such property is subject to nonrecourse liabilities and such Protected Partner’s Section 704(c) gain with respect to each such property exceeds his gain with respect thereto described in Treasury Regulations Section 1.752-3(a)(2).

 

Section 2.04             Qualified Liability Maintenance and Allocation.

 

(a)           During the Tax Protection Period, the Operating Partnership shall: (1) maintain on a continuous basis an amount of Qualified Liabilities at least equal to the Required Liability Amount; and (2) provide the Partners’ Representative, promptly upon request, with a description of the nature and amount of any Qualified Liabilities that are available to be guarantied by the Protected Partners pursuant to Section 2.04(b) of this Agreement. For the avoidance of doubt, and notwithstanding any other provision of this Agreement, the Operating Partnership shall not be required to maintain any amount of Qualified Liabilities in excess of the aggregate Required Liability Amount of all Protected Partners.

 

(b)           (i) During the Tax Protection Period, the Operating Partnership shall provide each Protected Partner with the opportunity to execute a guaranty, substantially in the form attached hereto as Exhibit D, of one or more Qualified Liabilities that are Guaranty Permissible Liabilities in an amount up to such Protected Partner’s Required Liability Amount (each such opportunity and each opportunity required by Section 2.04(c), a “Guaranty Opportunity”), and (ii) after the Tax Protection Period, and for so long as a Protected Partner has not had a 50% Termination, the Operating Partnership shall use commercially reasonable efforts to make Guaranty Opportunities available to each Protected Partner, provided that in the case of this clause (ii), the Operating Partnership shall not be required to incur any indebtedness that it would not otherwise have incurred, as determined by the Operating Partnership in its reasonable discretion; provided, however, that in the case of clauses (i) and (ii) the aggregate amount of all guaranties required to be made available by the Operating Partnership for execution by all Protected Partners need not exceed the aggregate Required Liability Amount of all Protected Partners. The Operating Partnership shall have the discretion to identify the Qualified Liability or Qualified Liabilities that shall be made available for guaranty by each Protected Partner. Each Protected Partner and its indirect owners may allocate the Guaranty Opportunity afforded to such Protected Partner in any manner they choose. The Operating Partnership agrees to file its tax returns allocating any debt subject to a Guaranty to the applicable Protected Partners. Each Protected Partner shall bear the costs incurred by it in connection with the execution of any guaranty to which it is a party. To the extent a Protected Partner executes a guaranty, the Operating Partnership shall deliver a copy of such guaranty to the lender under the Guarantied Liability promptly after receiving such copy from the relevant Protected Partner.

 

  

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(c)           During the Tax Protection Period, the Operating Partnership shall not allow a Debt Notification Event to occur unless the Operating Partnership provides at least thirty (30) days’ written notice (a “Section 2.04 Notice”) to each Protected Partner that may be affected thereby. The Section 2.04 Notice shall describe the Debt Notification Event and designate one or more Qualified Liabilities that may be guarantied by the Protected Partners pursuant to Section 2.04(b) of this Agreement in an amount equal to the amount of the refinanced or repaid Qualified Liability that was guarantied by such Protected Partner immediately prior to the date of the refinancing or repayment. Any Protected Partner that desires to execute a guaranty following the receipt of a Section 2.04 Notice shall provide the Operating Partnership with notice thereof within fifteen (15) days after the date of the Section 2.04 Notice.

 

(d)           Provided the Operating Partnership satisfies its obligations under Section 2.04(a), (b) and (c) of this Agreement, it shall have no liability to a Protected Partner under Section 2.04(e) for breach of Section 2.04, whether or not such Protected Partner accepts its Guaranty Opportunity. Furthermore, the Operating Partnership makes no representation or warranty to any Protected Partner concerning the treatment or effect of any guaranty under Federal, state, local, or foreign tax law, and bears no responsibility for any tax liability of any Protected Partner or Affiliate thereof that is attributable to a reallocation, by a taxing authority, of debt subject to a guaranty (other than a reallocation that results from any act or omission taken by the Operating Partnership or one of its Affiliates in violation of this Section 2.04 or an act or omission that is indemnifiable under Section 2.04(e) of this Agreement).

 

(e)           If the Operating Partnership shall fail to comply with any provision of this Section 2.04, the Operating Partnership shall pay, within thirty (30) days of such failure, a Make Whole Payment to each Protected Partner who recognizes income or gain as a result of such failure equal to the estimated Make Whole Amount applicable to such failure. If it is determined that the true Make Whole Amount applicable to a Protected Partner exceeds the estimated Make Whole Amount applicable to such Protected Partner, then the Operating Partnership shall pay such excess to such Protected Partner within thirty (30) days after the date of such determination, and if such estimated Make Whole Amount exceeds the true Make Whole Amount, then such Protected Partner shall pay such excess to the Operating Partnership within thirty (30) days after the date of such determination, but only to the extent such excess was actually received by such Protected Partner.

 

(f)           Notwithstanding any provision of this Agreement to the contrary, the sole and exclusive rights and remedies of any Protected Partner for a breach or violation of the covenants set forth in Section 2.04 shall be a claim a claim against the Operating Partnership for the Make Whole Amount as set forth in Section 2.04(e), and no Protected Partner shall be entitled to pursue a claim for specific performance of the covenants set forth in Section 2.04.

 

ARTICLE 3

 

GENERAL PROVISIONS

 

Section 3.01         Notices. All notices, demands, declarations, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms of this Agreement shall be given in the same manner as in the OP Agreement.

 

  

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Section 3.02    Rules of Construction. The words “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”  All terms defined in this Agreement shall have the defined meanings contained herein when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.  The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.  Unless explicitly stated otherwise herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, qualified or supplemented, including (in the case of agreements and instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and all attachments thereto and instruments incorporated therein.  References to a Person are also to its permitted successors and assigns.

 

Section 3.03    Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain form taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

 

Section 3.04    Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

 

Section 3.05    Creditors. Other than as expressly set forth herein, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Operating Partnership.

 

Section 3.06    Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any covenant, duty, agreement or condition.

 

Section 3.07    Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all of the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto.

 

Section 3.08    Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of any laws that might otherwise govern under applicable principles of conflicts of laws thereof.

 

Section 3.09    Jurisdiction.   The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in Borough of Manhattan, City of New York, State of New York, with respect to any dispute arising out of this Agreement or any transaction contemplated hereby to the extent such courts would have subject matter jurisdiction with respect to such dispute, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the action is brought in an inconvenient forum, or that the venue of the action is improper.

 

  

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Section 3.10    Severability.  Each provision of this Agreement will be interpreted so as to be effective and valid under applicable Law, but if any provision is held invalid, illegal or unenforceable under applicable Law in any jurisdiction, then such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been included herein.

 

Section 3.11    Entire Agreement. This Agreement contains the entire understanding and agreement among the Partners with respect to the subject matter hereof and amends, restates and supersedes the OP Agreement and any other prior written or oral understandings or agreements among them with respect thereto.

 

Section 3.12    Descriptive Headings. The descriptive headings herein are inserted for convenience only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

 

Section 3.13    No Rights as Stockholders. Nothing contained in this Agreement shall be construed as conferring upon the holders of the OP Units any rights whatsoever as stockholders of the REIT, including, without limitation, any right to receive dividends or other distributions made to stockholders of the REIT or to vote or to consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the REIT or any other matter.

 

[SIGNATURE PAGES FOLLOW]

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective duly authorized officers or representatives, all as of the date first written above.

 

	  	
REIT:

	  	  	  
	  	
AMERICAN REALTY CAPITAL

PROPERTIES, INC.

	  	  	  
	  	
By:

	
  

	  	  	
Name: Nicholas S. Schorsch

	  	  	
Title:   Chief Executive Officer

	  	  	  
	  	
OPERATING PARTNERSHIP:

	  	  	  
	  	
ARC PROPERTIES OPERATING

PARTNERSHIP, L.P.

	  	  	  
	  	
By:

	
AMERICAN REALTY CAPITAL

PROPERTIES, INC.

	  	  	
Its general partner

	  	  	  
	  	
By:

	
  

	  	  	
Name: Nicholas S. Schorsch

	  	  	
Title:   Chief Executive Officer

	  	  	  
	  	
PROTECTED PARTNER:

	  	  	  
	  	
ARC REAL ESTATE PARTNERS, LLC

	  	  	  
	  	
By:

	  
	  	  	
Name:  Nicholas S. Schorsch

	  	  	
Title:    Manager

 

Signature Page to Tax Protection Agreement

 

  

  

  

 

SCHEDULE I

 

PROTECTED PARTNERS

 

ARC Real Estate Partners, LLC

 

  

  

  

 

EXHIBIT A

 

PROTECTED PROPERTIES

	
Property Owner

	 	
Property

	  	 	  
	
CRE JV Mixed Five CT Branch Holdings LLC

	 	
458 Ocean Avenue (450), New London, CT

	
CRE JV Mixed Five CT Branch Holdings LLC

	 	
6 Killingworth Road, Higganum, CT

	
CRE JV Mixed Five DE Branch Holdings LLC

	 	
5 West Commerce Street, Smyrna, DE

	
CRE JV Mixed Five IL 4 Branch Holdings LLC

	 	
7310 W Grand Avenue (7312), Elmwood Park, IL

	
CRE JV Mixed Five MI 7 Branch Holdings LLC

	 	
48950 Van Dyke Avenue, Utica, MI

	
CRE JV Mixed Five MI 7 Branch Holdings LLC

	 	
633 Notre Dame, Grosse Pointe, MI

	
CRE JV Mixed Five NH Branch Holdings LLC

	 	
405 Portland Avenue, Rollinsford, NH

	
CRE JV Mixed Five NH Branch Holdings LLC

	 	
54 Main Street, Pittsfield, NH

	
CRE JV Mixed Five NY 1 Branch Holdings LLC

	 	
17 South Market Street, Johnstown, NY

	
CRE JV Mixed Five NY 1 Branch Holdings LLC

	 	
501 State Street, Schenectady, NY

	
CRE JV Mixed Five NY 1 Branch Holdings LLC

	 	
501 Western Avenue, Albany, NY

	
CRE JV Mixed Five OH 1 Branch Holdings LLC

	 	
10300 Northfield, Northfield, OH

	
CRE JV Mixed Five OH 1 Branch Holdings LLC

	 	
38115 Euclid Avenue, Willoughby, OH

	
CRE JV Mixed Five OH 1 Branch Holdings LLC

	 	
7820 Plaza Boulevard, Mentor, OH

	
CRE JV Mixed Five OH 2 Branch Holdings LLC

	 	
16622 Harvard Avenue, Cleveland, OH

	
CRE JV Mixed Five OH 2 Branch Holdings LLC

	 	
17411 Lorain Avenue, Cleveland, OH

	
CRE JV Mixed Five OH 2 Branch Holdings LLC

	 	
4300 Clark Avenue, Cleveland, OH

	
CRE JV Mixed Five OH 3 Branch Holdings LLC

	 	
14534 Madison Avenue, Lakewood, OH

	
CRE JV Mixed Five OH 3 Branch Holdings LLC

	 	
21550 Center Ridge Road, Rocky River, OH

	
CRE JV Mixed Five OH 4 Branch Holdings LLC

	 	
9243 Broadview Road, Broadview Heights, OH

	
CRE JV Mixed Five PA Branch Holdings LLC

	 	
100 Essex Avenue, Narberth, PA

	
CRE JV Mixed Five PA Branch Holdings LLC

	 	
1635 East Derby Road, Havertown, PA

	
CRE JV Mixed Five PA Branch Holdings LLC

	 	
560 Donner Avenue, Monesson, PA

	
CRE JV Mixed Five PA Branch Holdings LLC

	 	
600 Market St/600 Merchant St, Ambridge, PA

	
CRE JV Mixed Five VT Branch Holdings LLC

	 	
152 S Main Street, St. Albans, VT

	
CRE JV Mixed Five VT Branch Holdings LLC

	 	
155 Maple Street, White River Junction, VT

	
CRE JV Mixed Five VT Branch Holdings LLC

	 	
177 Main Street, Poultney, VT

	
CRE JV Mixed Five MI 2 Branch Holdings LLC

	 	
31231 Harper Avenue, St. Clair Shores, MI

	
CRE JV Mixed Five MI 2 Branch Holdings LLC

	 	
69055 Main Street, Richmond, MI

	
CRE JV Mixed Five MI 3 Branch Holdings LLC

	 	
2050 12 Mile Road, Warren, MI

	
CRE JV Mixed Five MI 3 Branch Holdings LLC

	 	
27777 Southfield Road, Lathrup Village, MI

	
CRE JV Mixed Five MI 4 Branch Holdings LLC

	 	
23801 Michigan Avenue, Dearborn, MI

	
CRE JV Mixed Five MI 4 Branch Holdings LLC

	 	
15930 Michigan Avenue, Dearborn, MI

	
CRE JV Mixed Five NY 3 Branch Holdings LLC

	 	
89 Oriskany Boulevard, Whitesboro, NY

	
CRE JV Mixed Five NY 3 Branch Holdings LLC

	 	
N Chenango & Genesee, Greene, NY

	
CRE JV Mixed Five NY 4 Branch Holdings LLC

	 	
2000 Monroe Avenue, Rochester, NY

	
CRE JV Mixed Five NY 4 Branch Holdings LLC

	 	
212 Main Street, East Aurora, NY

	
CRE JV Mixed Five NY 4 Branch Holdings LLC

	 	
3180 Sheridan Drive, Amherst (Buffalo), NY

	
CRE JV Mixed Five OH 5 Branch Holdings LLC

	 	
214 High Street, Wadsworth, OH

	
CRE JV Mixed Five OH 5 Branch Holdings LLC

	 	
3720 Center Road, Brunswick, OH

	
CRE JV Mixed Five OH 5 Branch Holdings LLC

	 	
955 Boardman-Poland Road, Boardman, OH

	
CRE JV Mixed Five OH 6 Branch Holdings LLC

	 	
315 E Main Street, Louisville, OH

	
CRE JV Mixed Five OH 6 Branch Holdings LLC

	 	
780 W State Street, Alliance, OH

	
CRE JV Mixed Five IL 2 Branch Holdings LLC

	 	
417 S Water Street, Wilmington, IL

	
CRE JV Mixed Five IL 2 Branch Holdings LLC

	 	
6720 W 111 Street, Worth, IL

	
CRE JV Mixed Five MI 1 Branch Holdings LLC

	 	
24624 W 10 Mile Road, Southfield, MI

	
CRE JV Mixed Five MI 1 Branch Holdings LLC

	 	
36520 Moravian, Clinton Township, MI

	
CRE JV Mixed Five MI 6 Branch Holdings LLC

	 	
16530 E Warren, Detroit, MI

	
CRE JV Mixed Five MI 6 Branch Holdings LLC

	 	
19601 Vernier, Harper Woods, MI

	
CRE JV Mixed Five NY 2 Branch Holdings LLC

	 	
118 Main Street, Whitehall, NY

	
CRE JV Mixed Five NY 2 Branch Holdings LLC

	 	
Route 32, Vails Gate, NY

	
CRE JV Mixed Five NY 5 Branch Holdings LLC

	 	
5 S Broome Street, Port Jervis, NY

	
CRE JV Mixed Five IL 3 Branch Holdings LLC

	 	
2854 W Cermak Street (Road), Chicago, IL

	
CRE JV Mixed Five IL 3 Branch Holdings LLC

	 	
4231 Joliet Avenue, Lyons, IL

	
CRE JV Mixed Five IL 3 Branch Holdings LLC

	 	
9244 S Chicago Avenue, Chicago, IL

	
CRE JV Mixed Five IL 5 Branch Holdings LLC

	 	
12004 S Pulaski Road, Alsip, IL

	
CRE JV Mixed Five IL 5 Branch Holdings LLC

	 	
2917 W 95 Street, Evergreen Park, IL

	
CRE JV Mixed Five MI 5 Branch Holdings LLC

	 	
12380 Woodward Avenue, Highland Park, MI

	
CRE JV Mixed Five MI 5 Branch Holdings LLC

	 	
16841 Schaefer Road, Detroit, MI

	
CRE JV Mixed Five MI 5 Branch Holdings LLC

	 	
31441 Plymouth Road, Livonia, MI

	
CRE JV Mixed Five OH 7 Branch Holdings LLC

	 	
2200 Wales Avenue, NW, Massillon, OH

	
CRE JV Mixed Five OH 7 Branch Holdings LLC

	 	
54 Federal Avenue NE, Massillon, OH

	
ARC HDCOLSC001, LLC

	 	
420 Foster Brothers Drive, West Columbia, SC

  

  

  

 

EXHIBIT B

 

ESTIMATED ALLOCATIONS OF SECTION 704(c) GAIN

 

See attached.

 

  

  

  

 

EXHIBIT C

 

REQUIRED LIABILITY AMOUNT

 

See attached.

 

  

  

  

 

EXHIBIT D

 

FORM OF GUARANTY

 

See attached.FORM OF INDEMNIFICATION AGREEMENT

 

THIS INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered into as of the ____ day of ________, 20__ (the “Effective Date”), by and between American Realty Capital Properties, Inc., a Maryland corporation (the “Company”), and ___________________ (“Indemnitee”).

 

WHEREAS, at the request of the Company, Indemnitee currently serves as [a director] [and] [an officer] of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of [his][her] service; and

 

WHEREAS, as an inducement to Indemnitee to serve or continue to serve as [a director] [and] [an officer], the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and

 

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses.

 

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1.             Definitions.  For purposes of this Agreement:

 

(a)           “Bylaws” means the Bylaws of the Company, as amended from time to time.

 

(b)          “Charter” means the charter of the Company, as amended, supplemented or otherwise modified from time to time.

 

(c)           “Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if, after the Effective Date (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 15% or more of the combined voting power of all of the Company’s then-outstanding securities entitled to vote generally in the election of directors without the prior approval of at least two-thirds of the members of the Board of Directors of the Company (the “Board of Directors”) in office immediately prior to such person’s attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) at any time, a majority of the members of the Board of Directors are not individuals (A) who were directors as of the Effective Date or (B) whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by the affirmative vote of at least two-thirds of the members of the Board of Directors then in office who were directors as of the Effective Date or whose election for nomination for election was previously so approved.

 

  

 

  

 

(d)           “Corporate Status” means the status of a person as a present or former director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company.  As a clarification and without limiting the circumstances in which Indemnitee may be serving at the request of the Company, service by Indemnitee shall be deemed to be at the request of the Company if Indemnitee serves or served as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise (i) of which a majority of the voting power or equity interest is owned directly or indirectly by the Company or (ii) the management of which is controlled directly or indirectly by the Company.

 

(e)           “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification and/or advance of Expenses is sought by Indemnitee.

 

(f)           “Effective Date” means the date set forth in the first paragraph of this Agreement.

 

(g)           “Expenses” means any and all reasonable and out-of-pocket attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, Employee Retirement Income Security Act of 1974, as amended, excise taxes and penalties and any other disbursements or expenses incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in or otherwise participating in a Proceeding.  Expenses shall also include Expenses incurred in connection with any appeal resulting from any Proceeding including, without limitation, the premium, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent.

 

(h)           “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent:  (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements), or (ii) any other party to or participant or witness in the Proceeding giving rise to a claim for indemnification or advance of Expenses hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

 

(i)           “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other proceeding, whether brought by or in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative (formal or informal) nature, including any appeal therefrom, except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee.  If Indemnitee reasonably believes that a given situation may lead to or culminate in the institution of a Proceeding, such situation shall also be considered a Proceeding.

 

Section 2.             Services by Indemnitee.  Indemnitee [will serve][serves] as [a director] [and] [an officer] of the Company.  However, this Agreement shall not impose any independent obligation on Indemnitee or the Company to continue Indemnitee’s service to the Company.  This Agreement shall not be deemed an employment contract between the Company (or any other entity) and Indemnitee.

 

  

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Section 3.             General.  The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the Effective Date and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the Effective Date.  The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law (the “MGCL”).

 

Section 4.             Standard for Indemnification.  If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall indemnify Indemnitee against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any such Proceeding unless it is established that (a) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) Indemnitee actually received an improper personal benefit in money, property or services or (c) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that [his][her] conduct was unlawful.

 

Section 5.             Certain Limits on Indemnification.  Notwithstanding any other provision of this Agreement (other than Section 6), Indemnitee shall not be entitled to:

 

(a)           indemnification hereunder if the Proceeding was one by or in the right of the Company and Indemnitee is adjudged to be liable to the Company;

 

(b)           indemnification hereunder if Indemnitee is adjudged to be liable on the basis that personal benefit was improperly received in any Proceeding charging improper personal benefit to Indemnitee, whether or not involving action in the Indemnitee’s Corporate Status; or

 

(c)           indemnification or advance of Expenses hereunder if the Proceeding was brought by Indemnitee, unless:  (i) the Proceeding was brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Section 12 of this Agreement, or (ii) the Charter or Bylaws, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

 

Section 6.             Court-Ordered Indemnification.  Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification of Indemnitee by the Company in the following circumstances:

 

(a)           if such court determines that Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the Expenses of securing such reimbursement; or

 

(b)           if such court determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper.  However, indemnification with respect to any Proceeding by or in the right of the Company or in which liability shall have been adjudged in the circumstances described in Section 2-418(c) of the MGCL shall be limited to Expenses.

 

  

3

  

 

Section 7.             Indemnification for Expenses of an Indemnitee Who Is Wholly or Partially Successful.  Notwithstanding any other provision of this Agreement, and without limiting any such provision, to the extent that Indemnitee was or is, by reason of [his][her] Corporate Status, made a party to (or otherwise becomes a participant in) any Proceeding and is successful, on the merits or otherwise, in the defense of such Proceeding, Indemnitee shall be indemnified for all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with each such claim, issue or matter, allocated on a reasonable and proportionate basis.  For purposes of this Section 7 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

Section 8.             Advance of Expenses for Indemnitee.  If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall, without requiring a preliminary determination of Indemnitee’s ultimate entitlement to indemnification hereunder, advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with such Proceeding within ten days after the receipt by the Company of a statement or statements requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Proceeding as to which it shall ultimately be established that the standard of conduct has not been met by Indemnitee and which have not been successfully resolved as described in Section 7 of this Agreement.  To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis.  The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.

 

Section 9.             Indemnification and Advance of Expenses as a Witness or Other Participant.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or may be, by reason of Indemnitee’s Corporate Status, made a witness or otherwise asked to participate in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party, Indemnitee shall be advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith within ten days after the receipt by the Company of a statement or statements requesting any such advance or indemnification from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee.

 

Section 10.           Procedure for Determination of Entitlement to Indemnification.

 

  

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(a)           To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification.  Indemnitee may submit one or more such requests from time to time and at such time(s) as Indemnitee deems appropriate in Indemnitee’s sole discretion.  The officer of the Company receiving any such request from Indemnitee shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

 

(b)           Upon written request by Indemnitee for indemnification pursuant to Section 10(a) above, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case:  (i) if a Change in Control shall have occurred, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, which Independent Counsel shall be selected by the Indemnitee and approved by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL, which approval shall not be unreasonably withheld; or (ii) if a Change in Control shall not have occurred, (A) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors or, if such a quorum cannot be obtained, then by a majority vote of a duly authorized committee of the Board of Directors consisting solely of one or more Disinterested Directors, (B) if Independent Counsel has been selected by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL and approved by the Indemnitee, which approval shall not be unreasonably withheld, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company.  If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 10(b).  Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

 

(c)           The Company shall pay the reasonable fees and expenses of Independent Counsel, if one is appointed.

 

Section 11.           Presumptions and Effect of Certain Proceedings.

 

(a)           In making any determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

 

(b)           The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, upon a plea of nolo contendere or its equivalent, or entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

 

  

5

  

 

(c)           The knowledge and/or actions, or failure to act, of any other director, officer, employee or agent of the Company or any other director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise shall not be imputed to Indemnitee for purposes of determining any other right to indemnification under this Agreement.

 

Section 12.           Remedies of Indemnitee.

 

(a)           If (i) a determination is made pursuant to Section 10(b) of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Sections 8 or 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Sections 7 or 9 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to any other section of this Agreement or the Charter or Bylaws is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of Maryland, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification or advance of Expenses.  Alternatively, Indemnitee, at Indemnitee’s option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  Indemnitee shall commence a proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce [his][her] rights under Section 7 of this Agreement.  Except as set forth herein, the provisions of Maryland law (without regard to its conflicts of laws rules) shall apply to any such arbitration.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

(b)           In any judicial proceeding or arbitration commenced pursuant to this Section 12, Indemnitee shall be presumed to be entitled to indemnification or advance of Expenses, as the case may be, under this Agreement and the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.  If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 12, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 8 of this Agreement until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).  The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all of the provisions of this Agreement.

 

(c)           If a determination shall have been made pursuant to Section 10(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification.

 

(d)           In the event that Indemnitee is successful in seeking, pursuant to this Section 12, a judicial adjudication of or an award in arbitration to enforce Indemnitee’s rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration.  If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

 

  

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(e)           Interest shall be paid by the Company to Indemnitee at the maximum rate allowed to be charged for judgments under the Courts and Judicial Proceedings Article of the Annotated Code of Maryland for amounts which the Company pays or is obligated to pay for the period (i) commencing with either the tenth day after the date on which the Company was requested to advance Expenses in accordance with Sections 8 or 9 of this Agreement or the 60th day after the date on which the Company was requested to make the determination of entitlement to indemnification under Section 10(b) of this Agreement, as applicable, and (ii) ending on the date such payment is made to Indemnitee by the Company.

 

Section 13.           Defense of the Underlying Proceeding.

 

(a)           Indemnitee shall notify the Company promptly in writing upon being served with any summons, citation, subpoena, complaint, indictment, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder and shall include with such notice a description of the nature of the Proceeding and a summary of the facts underlying the Proceeding.  The failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

 

(b)           Subject to the provisions of the last sentence of this Section 13(b) and of Section 13(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 13(a) above.  The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee, (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee or (iii) would impose any Expense, judgment, fine, penalty or limitation on Indemnitee.  This Section 13(b) shall not apply to a Proceeding brought by Indemnitee under Section 12 of this Agreement.

 

(c)           Notwithstanding the provisions of Section 13(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that Indemnitee may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject to the prior approval of the Company, which approval shall not be unreasonably withheld, at the expense of the Company.  In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, subject to the prior approval of the Company, which approval shall not be unreasonably withheld, at the expense of the Company (subject to Section 12(d) of this Agreement), to represent Indemnitee in connection with any such matter.

 

  

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Section 14.           Non-Exclusivity; Survival of Rights; Subrogation.

 

(a)           The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter or Bylaws, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise.  Unless consented to in writing by Indemnitee, no amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in [his][her] Corporate Status prior to such amendment, alteration or repeal, regardless of whether a claim with respect to such action or inaction is raised prior or subsequent to such amendment, alteration or repeal.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion of any right or remedy hereunder, or otherwise, shall not prohibit the concurrent assertion or employment of any other right or remedy.

 

(b)           In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

Section 15.           Insurance.  The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee by reason of [his][her] Corporate Status and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee by reason of [his][her] Corporate Status.  Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and Expenses incurred by Indemnitee in connection with a Proceeding over the coverage of any insurance referred to in the previous sentence.  The purchase, establishment and maintenance of any such insurance shall not in any way limit or affect the rights or obligations of the Company or Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights or obligations of the Company under any such insurance policies.  If, at the time the Company receives notice from any source of a Proceeding to which Indemnitee is a party or a participant (as a witness or otherwise) the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies.

 

Section 16.           Coordination of Payments.  The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

 

  

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Section 17.           Reports to Stockholders.  To the extent required by the MGCL, the Company shall report in writing to its stockholders the payment of any amounts for indemnification of, or advance of Expenses to, Indemnitee under this Agreement arising out of a Proceeding by or in the right of the Company with the notice of the meeting of stockholders of the Company next following the date of the payment of any such indemnification or advance of Expenses or prior to such meeting.

 

Section 18.           Duration of Agreement; Binding Effect.

 

(a)           This Agreement shall continue until and terminate on the later of (i) the date that Indemnitee shall have ceased to serve as a director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company and (ii) the date that Indemnitee is no longer subject to any actual or possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement).

 

(b)           The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

 

(c)           The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

 

(d)           The Company and Indemnitee agree that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm.  Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which Indemnitee may be entitled.  Indemnitee shall further be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertakings in connection therewith.  The Company acknowledges that, in the absence of a waiver, a bond or undertaking may be required of Indemnitee by a court, and the Company hereby waives any such requirement of such a bond or undertaking.

 

  

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Section 19.           Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever:  (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

Section 20.           Identical Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

 

Section 21.           Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

Section 22.           Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

 

Section 23.           Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, on the day of such delivery, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

 

(a)           If to Indemnitee, to the address set forth on the signature page hereto.

 

(b)           If to the Company, to:

 

American Realty Capital Properties, Inc.

405 Park Avenue

New York, New York 10022

Attention:  William M. Kahane

 

with a copy to:

 

Proskauer Rose LLP

Eleven Times Square

New York, New York 10036

Attention:  Peter M. Fass, Esq.

                   Steven L. Lichtenfeld, Esq.

 

or to such other address as may have been furnished in writing to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

 

  

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Section 24.           Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules.

 

[SIGNATURE PAGE FOLLOWS]

 

  

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

 

	 	
COMPANY:

	 	  
	 	
AMERICAN REALTY CAPITAL PROPERTIES, INC.

	 	  
	 	
By:

	  
	 	  	
Name:

	 	  	
Title:

	 	  	  
	 	
INDEMNITEE

	 	  	  
	 	  	  
	 	
Name:

	  
	 	
Address:

	  

 

  

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EXHIBIT A

 

AFFIRMATION AND UNDERTAKING TO REPAY EXPENSES ADVANCED

 

To:  The Board of Directors of American Realty Capital Properties, Inc.

 

Re:  Affirmation and Undertaking

 

Ladies and Gentlemen:

 

This Affirmation and Undertaking is being provided pursuant to that certain Indemnification Agreement dated the____day of ________ 20__, by and between American Realty Capital Properties, Inc., a Maryland corporation (the “Company”), and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of Expenses in connection with [Description of Proceeding] (the “Proceeding”).

 

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

 

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity.  I hereby affirm my good faith belief that at all times, insofar as I was involved as [a director] [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) did not act with bad faith or active or deliberate dishonesty, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

 

In consideration of the advance of Expenses by the Company for reasonable attorneys’ fees and related Expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established.

 

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this __ day of _________________, 20__.

 

	
Name:

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