Document:

Exhibit 10.2

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is entered into by and between Realty Income Corporation, a Maryland corporation (the “Company”), and John P. Case, an individual residing in the county of San Diego, state of California (the “Executive”), and shall be effective as of September 3, 2013 (the “Effective Date”).  This Agreement amends and restates in its entirety that certain Employment Agreement, effective as of January 1, 2013, by and between Executive and the Company (the “Original Agreement”).

 

1.                                   Term. Subject to the provisions in ¶ 10 for earlier termination, Executive’s employment shall be for a term (sometimes referred to as the “Term” or the “Term of this Agreement”) commencing on the Effective Date and ending on December 31, 2016.  If not previously terminated, the Term of this Agreement shall automatically be extended for two (2) additional years on December 31, 2016 (such that the extended term shall end on December 31, 2018 (the “Extended Term”)), unless either party elects not to so extend the Term of this Agreement by notifying the other party, in writing, of such election by no later than June 30, 2016.  Executive accepts such employment and agrees to perform the services specified herein, all upon the terms and conditions hereinafter set forth.

 

2.                                   Duties.  During the Term, Executive shall serve as the Company’s Chief Executive Officer, reporting directly to the Board of Directors of the Company (the “Board”).  Executive shall perform such management and administrative duties as are from time-to-time assigned to him by the Board, and which are consistent with his stature as Chief Executive Officer and the Company’s By-Laws.  The Executive shall be a member of the Company’s senior-most management body, which as of the Effective Date was the Company’s Executive Management Team. The Executive shall be appointed to, and shall remain on the Company’s Board of Directors (the “Board”) subject to the Company’s Bylaws and applicable shareholder approval. Executive also agrees to perform, without additional compensation, such other services for the Company and for any subsidiary or affiliated corporations of the Company or for any partnerships in which the Company has an interest, as the Board shall, from time-to-time specify, which are consistent with his stature as Chief Executive Officer and a Director.

 

3.                                   Extent of Services.  During the Term of this Agreement, Executive shall devote his full time, attention and energy to the business of the Company and, except as may be specifically permitted by the Board in writing, shall not engage in any other business activity which would materially interfere with the performance of his duties or be competitive with the business of the Company.  These restrictions shall not be construed as preventing Executive from (a) making passive investments in other businesses or enterprises; provided, however, that such other investments will not require services on the part of Executive which would in any manner impair the performance of his duties under this Agreement, and provided further that such other businesses or enterprises are not engaged in any business competitive to the business of the Company; (b) engaging in charitable or civic work as long as such charitable or civic work does not materially interfere with the performance of Executive’s duties and responsibilities to the Company and is not competitive with the business of the Company; and (c) with the prior written consent of the Board, service as a director, trustee, or member of any business, civic, or charitable organization.

 

 

4.                                 Compensation.

 

a.                                   Salary.  During the Term of this Agreement, as compensation for the proper and satisfactory performance of all duties to be performed by Executive hereunder, the Company shall pay to Executive a base salary at an annual rate of (i) no less than $750,000 for the remainder of calendar year 2013 following the Effective Date, and (ii) in each calendar year thereafter, no less than $800,000, in each case less required deductions for state and federal withholding tax, social security and all other required employee taxes and payroll deductions.  From time-to-time during the Term, the amount of Executive’s base salary may be increased (but not decreased) by and at the sole discretion of the Company.  The base salary shall be payable in installments in accordance with regular payroll policies of the Company in effect from time-to-time during the Term of this Agreement.

 

b.                                   Bonus. For each fiscal year of the Company ending during the Term, Executive shall be eligible to earn a cash performance bonus (the “Annual Bonus”) targeted at no less than two hundred percent (200%) of Executive’s base salary for the applicable fiscal year (the “Target Bonus”).  The Annual Bonus shall be based on the Company’s and/or Executive’s achievement of performance targets established by the Board or the Compensation Committee of the Board (the “Compensation Committee”), as applicable, in its sole but reasonable  discretion in the first quarter of each fiscal year, provided that the Board and/or the Compensation Committee shall consult with Executive in establishing such performance targets. Any Annual Bonus earned by Executive during the Term shall, except as otherwise stated in ¶ 10, be conditioned on Executive’s continued employment with the Company through the date of payment of such Annual Bonus.  Any Annual Bonus earned by Executive shall be paid to Executive no later than seventy-five (75) days after the conclusion of the fiscal year for which the Annual Bonus was earned.

 

5.                                 Signing Equity Awards and Long-Term Incentive Compensation.

 

a.                                 Signing Equity Awards. In connection with Executive’s appointment as Chief Executive Officer of the Company, the Company shall grant to Executive the following restricted stock awards:

 

(i)  The Company shall, on the Effective Date, grant Executive the number of shares of restricted common stock of the Company equal to $3,000,000 divided by the Fair Market Value (as defined in the Company’s 2012 Incentive Award Plan (the “Plan”)) of a share of the 

 

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Company’s common stock on the Effective Date (the “2013 Time-Vesting RSA”).  The 2013 Time-Vesting RSA shall vest in substantially equal installments on the last day of each of 2013, 2014, 2015 and 2016, subject to Executive being employed by the Company on such vesting dates, except as otherwise provided in ¶ 10.

 

(ii)  In addition to the 2013 Time-Vesting RSA, the Company shall, as soon as practicable following the Effective Date, grant Executive a number of shares of restricted common stock of the Company equal to $2,000,000 divided by the Fair Market Value (as defined in the Plan) of a share of the Company’s common stock on the Effective Date (the “2013 Performance-Vesting RSA”).  The 2013 Performance-Vesting RSA shall vest in substantially equal annual installments on the last day of each of 2013, 2014, 2015 and 2016,  to the extent that the applicable performance goals are achieved, subject to Executive being employed by the Company on the applicable vesting dates, except as otherwise provided in ¶ 10.  The performance goals shall be determined by the Board or the Compensation Committee in its sole reasonable discretion, provided that the Board and/or Compensation Committee shall consult with Executive in establishing the performance goals, in the first 90 days after the Effective Date.

 

(iii)  The terms and conditions of the 2013 Time-Vesting RSA and the 2013 Performance-Vesting RSA shall be set forth in separate award agreements in a form or forms prescribed by the Company consistent with this Agreement, to be entered into by the Company and Executive, and which shall recite the grant of such equity awards.

 

b.                                   Long-Term Incentive Compensation. In addition to the 2013 Time-Vesting RSA and the 2013 Performance-Vesting RSA, during the Term, Executive shall participate in the Plan, as such Plan shall be amended from time to time. Beginning in 2014, no less than 50% of each annual equity award will be time-based, vesting in equal annual installments over not more than five years following the grant date of such award. The remainder of each such award shall be performance-based, vesting over a performance period of three years (or less) following the grant date, assuming the performance targets have been met.

 

6.                                   Medical Insurance; Benefit Plans.  During the Term of this Agreement, Executive shall be eligible to participate, on the same terms as are applied to all other senior executive officers of the Company, in any group medical insurance plan, qualified pension or profit sharing plan or any other employee benefit plan from time-to-time maintained by the Company.  Nothing in this paragraph is intended to require the Company to maintain or to continue any employee benefits plans, nor is this paragraph intended to limit the Company’s ability to revise, supplement or terminate any or all such employee benefit plans in its sole discretion.

 

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7.                                 Expenses; Legal Fees.  During the Term of this Agreement, the Company shall pay to, or reimburse Executive, upon submission of an appropriate statement by Executive documenting such expenses as required by the Internal Revenue Code of 1986, as amended (the “Code”), for all out-of-pocket expenses for entertainment, travel, meals, hotel accommodations and the like reasonably incurred by him in the course of his employment.  The Company shall reimburse Executive for up to $25,000 in legal fees and expenses actually incurred by Executive in connection with the negotiation of this Agreement and related documentation.  Subject to ¶ 10(f) below, the Company shall reimburse such legal fees and expenses within thirty (30) days following Executive’s delivery to the Company of documentation evidencing such expenses.

 

8.                                 Vacation.  Executive shall be entitled to an annual vacation in accordance with the Company’s vacation policy as contained in its Employee Handbook, as the same may be amended from time to time.  Executive’s prior service with the Company shall be included in determining vacation accrual and all other benefits.  Such vacation shall be scheduled at such time as Executive may choose, but shall be timed in such manner as to avoid interference with the necessary performance of his duties,  Unused vacation time shall accrue from year-to-year subject to the caps and other limitations set forth in the Company’s vacation policy as contained in its Employee Handbook, as the same may be amended from time to time in the Company’s sole discretion.

 

9.                                 Sick/Personal Leave.  Executive shall be entitled to sick/personal leave in accordance with the Company’s Employee Handbook, as the same may be amended from time to time.

 

10.                        Termination.

 

a.                                   Death or Permanent Disability.  (i) In the event that Executive dies or incurs a Disability (as defined below) during the Term of this Agreement, then Executive’s employment with the Company shall terminate upon Executive’s death or Disability, and, subject to ¶¶ 10(e) and 10(f) below, the Company shall: (A) pay to Executive or his estate in a single lump sum an amount equal to the sum of (x) twelve (12) months’ of Executive’s then current base salary under this Agreement, plus (y) the Bonus Amount (as defined in the Definitions Annex below) ((x) and (y), collectively, the “Severance Payment”), (B) pay to Executive or his estate all unpaid salary and unused vacation accrued by Executive through the date of termination (the “Accrued Obligations”), (C) pay to Executive or his estate any unpaid Annual Bonus earned by Executive for the completed fiscal year immediately preceding the year in which the termination occurs (the “Unpaid Annual Bonus”), and (D) continue to provide Executive or Executive’s eligible dependants with group medical insurance at the 

 

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Company’s expense (whether through reimbursement of COBRA premiums or otherwise in the Company’s discretion) for a period of twelve (12) months from the date of Executive’s Separation from Service or until Executive or his family becomes covered under another group medical insurance plan, whichever occurs first.

 

(ii)  In the event of a termination of Executive’s employment due to Executive’s death or Disability during the Term, subject to ¶ 10(e) below, (A) all then-outstanding unvested time-vesting Company equity awards held by Executive on the termination date (including, without limitation, the 2013 Time-Vesting RSA) and the 2013 Performance-Vesting RSA shall each vest in full as of the termination date, and (B) each then-outstanding unvested performance-vesting Company equity award held by Executive on the termination date, other than the 2013 Performance-Vesting RSA, shall vest with respect to a pro rata number of shares subject to the award (based on the number of days during the applicable performance period during which Executive remained continuously employed) based on the extent to which the applicable performance goals (pro rated based on the number of days in the performance period through the termination date) are actually achieved as of the termination date.

 

(iii) For purposes of this Agreement, Executive shall be deemed to have a “Disability” in the event of Executive's absence for a period of 120 consecutive business days or 180 days in a 365 day period as a result of incapacity due to a physical or mental condition, illness or injury, such determination to be made by a physician mutually acceptable to the Company and Executive or Executive's legal representative (such acceptance not to be unreasonably withheld) after such physician has completed an examination of Executive. Executive agrees to make himself available for such examination upon the reasonable request of the Company, and the Company shall be responsible for the cost of such examination.

 

b.                                   Termination by the Company without Cause or for Good Reason.

 

(i)  Subject to ¶¶ 10(e) and 10(f) below, Executive’s employment with the Company may be terminated by the Company without Cause or by Executive for Good Reason (each as defined in the Definitions Annex below) at any time upon written notice to Executive or the Company, as applicable (in either case, a “Qualifying Termination”). In the event of a Qualifying Termination during the Term, the Company shall: (A) pay to Executive in a single lump sum an amount equal to the sum of (x) twenty-four (24) months’ of Executive’s then current base salary under this Agreement, plus (y) two (2) times the Bonus Amount ((x) and (y), collectively, the “Severance Payment”), (B) pay to Executive the Accrued Obligations, (C) pay to Executive 

 

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any Unpaid Annual Bonus, and (D) continue to provide Executive with group medical insurance at the Company’s expense (whether through reimbursement of COBRA premiums or otherwise in the Company’s discretion) for a period of twelve (12) months from the date of Executive’s Separation from Service or until Executive becomes covered under another group medical insurance plan, whichever occurs first.

 

(ii)                              In the event of a Qualifying Termination during the Term which occurs as a result of a Change in Control or within twelve (12) months after a Change in Control (a “Qualifying Change in Control Termination”), in lieu of the compensation stated in ¶ 10(b)(i) above and subject to ¶ 10(e) below, the Company shall: (A) pay to Executive in a single lump sum an amount equal to the sum of (x) thirty-six (36) months’ of Executive’s then current base salary under this Agreement, plus (y) three (3) times the Bonus Amount ((x) and (y), collectively, the “CIC Severance Payment”), (B) pay to Executive a pro-rated portion of Executive’s Target Bonus for the partial fiscal year in which the termination date occurs, in an amount equal to the product of (x) the Target Bonus, times (y) a fraction, the numerator of which shall be the number of days in the calendar year in which the termination date occurs, through such termination, and the denominator of which shall be 365, (C) pay to Executive the Accrued Obligations, (D) pay to Executive any Unpaid Annual Bonus, and (E) continue to provide Executive with group medical insurance at the Company’s expense (whether through reimbursement of COBRA premiums or otherwise in the Company’s discretion) for a period of twelve (12) months from the date of Executive’s Separation from Service or until Executive becomes covered under another group medical insurance plan, whichever occurs first.

 

(iii) In the event of a Qualifying Termination or a Qualifying Change in Control Termination, in either case, during the Term, subject to ¶ 10(e) below, (A) all then-outstanding unvested time-vesting Company equity awards held by Executive on the termination date (including, without limitation, the 2013 Time-Vesting RSA) and the 2013 Performance-Vesting RSA shall each vest in full as of the termination date, and (B) each then-outstanding unvested performance-vesting Company equity award held by Executive on the termination date, other than the 2013 Performance-Vesting RSA, shall vest with respect to a pro rata number of shares subject to the award (based on the number of days during the applicable performance period during which Executive remained continuously employed) based on the extent to which the applicable performance goals (pro rated based on the number of days in the performance period through the termination date) are actually achieved as of the termination date.

 

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c.                                    Company Non-Renewal.  Subject to ¶¶ 10(e) and 10(f) below, in the event that Executive’s employment with the Company is terminated by reason of (i) the failure of the Company to renew the Term on substantially similar material terms  in accordance with ¶ 1 above, or (ii) the expiration of the Extended Term (each of (i) and (ii), a “Non-Renewal”) and, in each case, Executive is willing and able, at the time of such Non-Renewal, to continue performing services on the terms and conditions of this Agreement, then the Company shall: (A) pay to Executive in a single lump sum an amount equal to the sum of (x) eighteen (18) months’ of Executive’s then current base salary under this Agreement, plus (y) one and one-half (1.5) times the Bonus Amount ((x) and (y), collectively, the “Non Renewal Severance Payment”), (B) pay to Executive the Accrued Obligations, (C) pay to Executive any Unpaid Annual Bonus, and (D) continue to provide Executive with group medical insurance at the Company’s expense (whether through reimbursement of COBRA premiums or otherwise in the Company’s discretion) for a period of twelve (12) months from the date of Executive’s Separation from Service or until Executive becomes covered under another group medical insurance plan, whichever occurs first.   In addition, subject to ¶ 10(e) below, (1) all then-outstanding unvested time-vesting Company equity awards held by Executive on the termination date shall vest in full as of the termination date, and (2) each then-outstanding unvested performance-vesting Company equity award held by Executive on the termination date shall vest with respect to a pro rata number of shares subject to the award (based on the number of days during the applicable performance period during which Executive remained continuously employed) based on the extent to which the applicable performance goals (pro rated based on the number of days in the performance period through the termination date) are actually achieved as of the termination date.

 

d.                                   Termination by Executive; Retirement.

 

(i)                                  Executive may voluntarily terminate his employment with the Company (A) by electing not to renew the Term in accordance with ¶ 1 above, or (B) other than for Good Reason at any time upon two (2) weeks’ written notice to the Company.  In either such event, the Company shall have no further obligation to Executive or his spouse or estate, except that the Company shall pay to Executive or his spouse or estate the Accrued Obligations.

 

(ii)                              Upon Executive’s Retirement (as defined in the Definitions Annex below),  all then-outstanding unvested Company equity awards held by Executive on the termination date shall vest in full as of the termination date.

 

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e.                                   General.  With respect to the amounts set forth in subclause (D) in ¶ 10(a) above and in sub clauses (i)(D) and (ii)(E) in ¶ 10(b) above, notwithstanding anything to the contrary contained herein, if the Company is otherwise unable to continue to cover Executive under its group health plans (including without limitation, by reason of Section 2716 of the Public Health Service Act), then the Company shall pay to Executive an amount equal to each remaining Company premium payment as currently taxable compensation in substantially equal monthly installments over the coverage continuation period (or the remaining portion thereof).  Notwithstanding the foregoing, the severance payments and benefits described in ¶¶ 10(a), 10(b) and 10(c) above (other than in the event of Executive’s death), other than any accrued salary and accrued but unused vacation, shall be payable only in the event that the termination of employment constitutes a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h) (a “Separation from Service”).  In addition, notwithstanding anything contained herein, in the event that Executive’s employment is terminated by the Company or by Executive pursuant to ¶¶ 10(a), 10(b) or 10(c) above (other than in the event of Executive’s death), such termination shall be upon the terms of, and the Company and Executive shall execute, in the execution time frame specified in such document following the Separation from Service, the Severance Agreement and General Release substantially in the form of Exhibit A, attached hereto and incorporated herein by reference, and Executive’s right to receive the severance payments and benefits under ¶ 10(a), 10(b) or 10(c) above (other than the Accrued Obligations) shall be subject to and contingent on the execution and non-revocation by Executive of such Severance Agreement and General Release (the “Release”), provided the Company provides the Release to Executive on or within seven (7) days subsequent to the Separation from Service.  Subject to ¶ 10(f) below, any Death/Disability Severance Payment, Severance Payment, CIC Severance Payment or Non-Renewal Severance Payment, as applicable, that becomes payable to Executive pursuant to ¶ 10(a), 10(b) or 10(c) above shall be paid to Executive no later than the sixtieth (60th) day following the date of Executive’s Separation from Service.  Upon termination of Executive’s employment for any reason, unless otherwise specified in a written agreement between Executive and the Company, Executive shall be deemed to have resigned from all offices, directorships, and other employment positions if any, then held with the Company, and shall take all actions reasonably requested by the Company to effectuate the foregoing.

 

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f.                                       Internal Revenue Code Section 409A.  Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed by the Company at the time of his Separation from Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of Executive’s benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of the Separation from Service or (ii) the date of Executive’s death.  Upon the expiration of the applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this ¶ 10(f) shall be paid in a lump sum to Executive, and any remaining payments due under the Agreement shall be paid as otherwise provided herein.

 

                                                Any right to a series of installment payments pursuant to this Agreement is to be treated as a right to a series of separate payments.  To the extent that any payments or reimbursements provided to Executive under this Agreement are deemed to constitute compensation to which Treasury Regulation Section 1.409A-3(i)(1)(iv) would apply, such amounts shall be paid or reimbursed to Executive reasonably promptly, but in no event later than December 31 of the year following the year in which the expense was incurred.  The amount of any such payments eligible for reimbursement in one year shall not affect the payments or expenses that are eligible for payment or reimbursement in any other taxable year, and Executive’s and his estate’s right to such payments or reimbursement shall not be subject to liquidation or exchange for any other benefit.

 

g.                                   Termination for Cause. In the event that Executive is discharged by the Company for Cause then this Agreement shall automatically terminate (except for the provisions of ¶¶ 12 and 13, which shall continue in effect), and upon such termination, the Company shall have no further obligation to Executive or his spouse or estate, except that the Company shall pay to Executive the Accrued Obligations.

 

11.                          Corporate Opportunity.  Executive acknowledges the value to the Company of his knowledge, contacts and working relationships involving the business of the Company.  Other than as stated in ¶ 3, Executive agrees during the Term to utilize all of such capacities for the sole use and benefit of the Company and, during the Term, to first offer to the Company any and all of those opportunities which shall come to his knowledge which are within the area of business of the Company.

 

12.                          Confidential Information; Non-Solicitation.  Executive acknowledges that in the course of his employment with the Company, he will receive certain trade secrets, know-how, lists of customers, employee records and other confidential information and knowledge concerning the business of the Company (hereinafter collectively referred to 

 

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as “information”) which the Company desires to protect.  Executive understands that such information is confidential, and he agrees not to reveal such information to anyone outside the Company either during the Term of this Agreement or indefinitely thereafter, except to the extent otherwise required by applicable law or to the extent that such information enters the public domain other than by breach of this Agreement.  Executive further agrees that during the Term and indefinitely thereafter he will not use such information, directly or indirectly, to compete against the Company.  At such time as Executive shall cease to be employed by the Company or as soon as practicable thereafter, he shall surrender to the Company all papers, documents, writings and other property produced by him or coming into his possession by or through his employment hereunder and relating to the information referred to in this paragraph, and Executive agrees that all such materials will at all times remain the property of the Company. In addition, while employed by the Company and for a period of twenty-four (24) months after Executive’s termination date, Executive shall not directly or indirectly solicit, induce, or encourage any employee or consultant of the Company and its subsidiaries and affiliates to terminate their employment or other relationship with the Company and its subsidiaries and affiliates or to cease to render services to any member of the Company and its subsidiaries and affiliates and Executive shall not initiate discussion with any such person for any such purpose.

 

13.                          Assignment of Proprietary Information.  During the Term of this Agreement, all patents, processes and other proprietary information developed by Executive in the course of his employment shall be the sole and exclusive property of the Company.  Executive covenants and agrees to execute any documents or take any action necessary to effectively transfer any rights he may have in such proprietary information to the Company and to maintain the rights, interest and title of the Company in and to such information.  Nothing herein shall be deemed to deny Executive the protection afforded by California Labor Code Section 2870.

 

14.                          Indemnification.  The Company shall indemnify Executive against liability pursuant to an Indemnity Agreement, which the Company and Executive have previously executed, and which is incorporated into this Agreement.

 

15.                          Notices.  All notices, requests, consents and other communications under this Agreement shall be in writing and shall be deemed to have been delivered on the date personally delivered or on the date mailed, postage prepaid, by certified mail, return receipt requested, or telegraphed and confirmed if addressed to the respective parties as follows:

 

	
If   to Executive:
    	
John P. Case
    
	
 
    	
P.O. Box 7085
    
	
 
    	
Rancho Santa Fe, CA   92067
    
	
 
    	
 
    
	
 
    	
With a copy to:
    
	
 
    	
Steven Eckhaus
    
	
 
    	
Cadwalader,   Wickersham & Taft LLP
    
	
 
    	
1 World Financial   Center
    
	
 
    	
New York, New York   10281
    

 

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If   to the Company:
    	
Realty Income   Corporation
    
	
 
    	
Attention:   President, Chief Operating Officer; Chairman of the Board
    
	
 
    	
600 La Terraza   Boulevard
    
	
 
    	
Escondido,   California 92025
    

 

Either party hereto may designate a different address by providing written notice of such new address to the other party hereto as provided in this ¶ 15.

 

16.                          Specific Performance.  Executive acknowledges that a remedy at law for any breach or attempted breach of ¶¶ 12 and 13 of this Agreement will be inadequate, and therefore agrees that the Company shall be entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or any other equitable relief.

 

17.                          Severability.  In the event any term, phrase, clause, paragraph, section, restriction, covenant or agreement contained in this Agreement shall be held to be invalid or unenforceable, the same shall be deemed, and it is hereby agreed that the same are meant to be several and shall not defeat or impair the remaining provisions hereof.

 

18.                          Waiver.  The waiver by either party of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent or continuing breach of this Agreement by the counterparty.

 

19.                          Assignment.  This Agreement may not be assigned by Executive.  Neither of Executive nor his spouse or estate shall have any right to commute, encumber or dispose of any right to receive payments under this Agreement, it being agreed that such payments and the rights to such payments are not assignable and not transferable.

 

20.                          Binding Effect.  Subject to the provisions of ¶ 19, this Agreement shall be binding upon and inure to the benefit of the parties hereto, Executive’s heirs and personal representatives, and the successors and assigns of the Company.

 

21.                          Entire Agreement.  This Agreement sets forth the entire agreement and understanding between the parties relating to the subject matter contained herein and supersedes all other agreements, oral or written, between the parties relating to such subject matter, including, but not limited to, the Original Agreement and any and all other agreements between the parties concerning employment, compensation, or profit sharing; provided, however, that the Company’s equity compensation plans and any written stock option or restricted stock agreement between the Company and Executive setting forth the terms of incentive compensation awards granted to Executive under such plans and the Indemnity Agreement between the Company and Executive all shall remain in full force and effect.

 

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22.         Withholding.  Any amounts payable under this Agreement shall be subject to any required federal, state, local or other income, employment or other tax withholdings.

 

23.         Amendment.  This Agreement may be amended only by an instrument in writing executed by both parties to this Agreement.

 

24.         Governing Law and Dispute Resolution.  This Agreement shall be construed and enforced in accordance with and governed by the law of the State of California. Any dispute regarding this Agreement or Executive’s employment shall be resolved by an arbitration administered by the American Arbitration Association under its Employment Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction.  The arbitration shall be held in San Diego, California.

 

25.         Clawback.  Executive agrees that compensation paid or payable to Executive pursuant to this Agreement shall, to the extent applicable, be subject to (a) the provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, and (b) any other claw-back requirements under applicable law.

 

26.         Excise Tax.     If any payments or benefits paid or provided or to be paid or provided to Executive or for Executive’s benefit pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, employment with the Company or its subsidiaries or the termination thereof (a "Payment" and, collectively, the "Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then Executive may, at his sole and exclusive discretion, elect for such Payments to be reduced to one dollar less than the amount that would constitute a "parachute payment" under Section 280G of the Code (the "Scaled Back Amount").  Any such election must be in writing and delivered to the Company within thirty (30) days after the date of termination.  If Executive does not elect to have Payments reduced to the Scaled Back Amount, Executive shall be responsible for payment of any Excise Tax resulting from the Payments and Executive shall not be entitled to a gross-up payment under this Agreement or any other for such Excise Tax.  If the Payments are to be reduced, they shall be reduced in the following order of priority: (a) first from cash compensation, (b) next from equity compensation, then (c) pro-rated among all remaining payments and benefits.  To the extent there is a question as to which Payments within any of the foregoing categories are to be reduced first, the Payments that will produce the greatest present value reduction in the Payments with the least reduction in economic value provided to Executive shall be reduced first.

 

27.         No Mitigation.  The Company agrees that, if Executive's employment is terminated under ¶ 10, Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to Executive by the Company.  Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by Executive as the result of employment by another employer, by retirement benefits or otherwise, except as set forth under ¶¶ 25 and 26 above.

 

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

 

	
 
    	
REALTY INCOME CORPORATION
    	
EXECUTIVE
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
/s/ Michael R. Pfeiffer
    	
 
    	
/s/ John P. Case
    
	
 
    	
Michael R.   Pfeiffer
    	
 
    	
John P.   Case
    
	
 
    	
Executive   Vice President,
    	
 
    	
 
    
	
 
    	
General   Counsel and Secretary
    	
 
    	
 
    

 

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DEFINITIONS

 

For purposes of this Agreement, “Bonus Amount,” “Cause,” “Change in Control,” “Good Reason,” and “Retirement” shall have the following defined meanings:

 

1.           “Bonus Amount” means (a) in the event of a termination of Executive’s employment that occurs in calendar year 2013, 2014 or 2015, the Target Bonus for the applicable year, (b) in the event of a termination of Executive’s employment that occurs in calendar year 2016, the average of the Annual Bonus earned by the Employee in 2014 and 2015 (if any), (c) in the event of a termination of Executive’s employment that occurs in calendar year 2017, the average of the Annual Bonus earned by the Employee in each of 2014, 2015 and 2016 (if any), and, in the event of a termination of Executive’s employment that occurs in a calendar year after 2017, the average of the Annual Bonus earned by the Employee in each of the immediately preceding three years (if any).

 

2.           “Cause” means Executive has committed (a) an act of fraud, dishonesty, theft or embezzlement against the Company or a customer; (b) malicious or reckless disclosure of the Company’s confidential or proprietary information; (c) commission of a felony or any gross or willful misconduct, where the Company reasonably determines that such act or misconduct has (1) seriously undermined the ability of the Company’s management to entrust Executive with important matters or otherwise work effectively with Executive, (2) contributed to the Company’s loss of significant revenues or business opportunities, or (3) significantly and detrimentally effected the business or reputation of the Company or any of its subsidiaries; and/or (d) Executive’s intentional failure or refusal (other than by reason of a physical or mental disability) to perform his lawful and ethical duties under this Agreement.  Executive’s termination for Cause shall not be effective unless the Company has given Executive no less than thirty days’ notice of termination and the actions underlying its Cause determination, and Executive has failed to cure such underlying reasons to the Board’s reasonable satisfaction during such thirty day period.

 

3.           “Change in Control” shall mean the occurrence of any of the following:

 

(a)         An acquisition in one transaction or a series of related transactions (other than directly from the Company or pursuant to awards granted under the Company’s equity incentive plan or compensatory options or other similar awards granted by the Company) of the Company’s voting securities by any individual or entity (a “Person”), immediately after which such Person has beneficial ownership of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding voting securities (other than a Non-Control Transaction, as defined below);

 

(b)         The individuals who, immediately prior to the Effective Date, are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the election, or nomination for election, by the Company’s common stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the 

 

1

 

Incumbent Board if such individual initially assumed office as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any election contest or Proxy Contest; or

 

(c)         the consummation of

 

(i)           a merger, consolidation or reorganization involving the Company unless:

 

(A)         the stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, more than fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the “Surviving Corporation”) in substantially the same proportion as their ownership of the Company’s voting securities immediately before such merger, consolidation or reorganization,

 

(B)         the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least a majority of the members of the board of directors of the Surviving Corporation, or a corporation beneficially owning, directly or indirectly, a majority of the voting securities of the Surviving Corporation, and

 

(C)        no Person, other than (i) the Company, (ii) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Company, the Surviving Corporation, or any related entity or (iii) any Person who, together with its Affiliates, immediately prior to such merger, consolidation or reorganization had beneficial ownership of fifty percent (50%) or more of the Company’s then outstanding voting securities, owns, together with its Affiliates, beneficial ownership of fifty percent (50%) or more of the combined voting power of the Surviving Corporation’s then outstanding voting securities.

 

(A transaction described in clauses (A) through (C) above is referred to herein as a “Non-Control Transaction”);

 

(d)         a complete liquidation or dissolution of the Company; or

 

(e)         an agreement for the sale or other disposition of all or substantially all of the assets or business of the Company to any Person.

 

For purposes of this Agreement, “Affiliate” shall mean, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with, such Person.  Neither the Company nor any Person controlled by the Company shall be deemed to be an Affiliate of any holder of Common Stock.

 

2

 

4.           “Good Reason” means Executive’s resignation of employment within sixty (60) days of one or more of the following events which remains uncured thirty (30) days after Executive’s delivery of written notice to the Company:

 

(a)         a material adverse change to Executive’s duties, title, authority reporting structure or responsibilities (including any such change resulting from the Company ceasing to be a publicly-held company or the Company becoming a subsidiary of a publicly-held company in connection with a Change in Control but excluding any failure by the Company’s shareholders to elect Executive to the Company’s Board of Directors), taking into account Executive’s position immediately prior to such change;

 

(b)         requiring Executive to report to any entity or person other than, or in addition to, the Company’s Board of Directors (including, without limitation, requiring Executive to report solely to an Executive Chairman of the Board of Directors);

 

(c)         a material breach of this Agreement by the Company or of any other agreement between the parties;

 

(d)         the Company’s failure to obtain an agreement from any successor to the Company 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 succession had taken place, except where such assumption occurs by operation of law;

 

(e)         the Company’s relocation of Executive’s principal office location to a place more than forty (40) miles from the Company’s present headquarters location (except that reasonably required travel on the Company’s business shall not be considered a relocation).

 

5.            “Retirement” means the termination of Executive’s employment, other than as a result of Executive’s death or termination by the Company for Cause, at a time when Executive has (i) attained at least 60 years of age, and (ii) completed at least ten (10) consecutive years of service as an employee of the Company.

 

3

 

EXHIBIT A

 

SEVERANCE AGREEMENT AND GENERAL RELEASE

 

This Severance Agreement and General Release (this “Severance Agreement”) is entered into as of  _____________________, 20___, by and between Realty Income Corporation (the “Company”), and ____________________ (hereinafter “Executive”).

 

IN CONSIDERATION of the severance compensation as herein provided, to which Executive is not otherwise entitled, Executive does hereby unconditionally, irrevocably and absolutely release and discharge the Company, and any parent and subsidiary corporations, divisions and other affiliated entities, past and present, as well as its past and present directors, officers, employees, shareholders, agents, successors and assigns (collectively, “Released Parties”), from any and all loss, liability, claims, demands, causes of action, or suit of any type related directly or indirectly or in any way connected to the transactions or occurrences between Executive and the Released Parties to date, to the fullest extent permitted by applicable law.  This release includes, but is not limited to, any losses, liabilities, claims, demands, causes of action, known or unknown, suspected or unsuspected, arising directly out of or in any way related to Executive’s employment with the Company, or the termination of Executive’s employment.  This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, common law, constitutional or other statutory claims, as well as alleged violations of the California Labor Code, any applicable California Industrial Welfare Commission order, the California Business and Professions Code, Title VII of the Civil Rights Act of 1964, the California Fair Employment and Housing Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Age Discrimination in Employment Act of 1967, all as amended, and all claims for attorneys’ fees, costs and expenses.  However, this release shall not apply to claims for workers’ compensation benefits or unemployment insurance benefits, any challenge made by Executive to the validity of his release of claims under the Age Discrimination in Employment Act, or any other claims of Executive that cannot, by statute, lawfully be waived by this Severance Agreement.  Executive is not waiving his rights to enforce this Agreement, not waiving vested rights under any other agreement between the parties, not waiving indemnification and not waiving legal fees with respect thereto.

 

IN FURTHER CONSIDERATION THEREOF, Executive hereby waives all rights he may have to any personal relief or recovery from any charge or complaint, for events or causes of action occurring or accruing on or before the Effective Date of this Severance Agreement, before any federal, state, or local administrative agency against the Released Parties, except as such waiver is prohibited by statutory provision.  Executive further waives all rights to file or join in any action before any federal, state, or local court against the Released Parties for any events or causes of action occurring or accruing on or before the Effective Date of this Severance Agreement.  Executive also acknowledges that he does not have any current charge or claim against the Released Parties pending before any local, state or federal agency regarding his employment.  Except as prohibited by 

 

 

statutory provision, in the event that any claims are filed, they shall be dismissed with prejudice upon presentation of this Severance Agreement, and Executive shall reimburse the Company for the costs, including reasonable attorneys' fees, of defending any such action.  The attorneys’ fee provision in the previous sentence shall not apply to any action by Executive to challenge the enforceability of his waiver of rights under the Age Discrimination in Employment Act.

 

As consideration for entering into this Severance Agreement, Executive shall receive the following severance compensation payable in accordance with the terms of ¶ 10 of that certain Amended and Restated Employment Agreement between the parties dated as of September 3, 2013 (the “Employment Agreement”):

 

a)           The total gross sum of                    ($             ), payable in a lump sum, and subject to applicable withholdings; and

 

b)           Group medical insurance paid for by the Company for Executive and his dependents (if currently covered) through                  , or until Executive becomes covered under another group medical insurance plan, whichever occurs first.  Executive shall immediately notify the Company upon becoming eligible for coverage under another group medical insurance plan.

 

Except as set forth in this Severance Agreement, or as otherwise mandated by applicable law, Executive shall not be entitled to any benefits as an employee or former employee of the Company.

 

As a condition of the foregoing payments and benefits, Executive agrees to preserve the confidentiality of all trade secrets and other confidential information of the Released Parties.  Executive agrees to comply, in all respects, with the on-going confidentiality and non-solicitation provisions contained in ¶ 12 of the Employment Agreement between the parties.

 

Executive agrees to cooperate with the Company in accomplishing a smooth and orderly transition in the transfer of responsibilities of Executive to other employees of the Company, particularly including pending matters of which Executive has the principal knowledge and background information.  In this regard, Executive agrees to respond in a timely fashion to the questions which may be presented occasionally by the Company.  Such cooperation and responses shall not entitle Executive to any additional compensation beyond the severance compensation specified herein above, so long as such cooperation and responses do not unreasonably interfere with Executive’s other gainful employment or efforts to secure gainful employment.

 

By signing this Severance Agreement, Executive represents warrants and agrees as follows:

 

(1)          Executive has carefully read this Severance Agreement and understands all of its respective terms.

 

 

(2)          Executive does expressly waive all of the benefits and rights granted to him pursuant to California Civil Code Section 1542, which provides and reads as follows:

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

 

Executive does certify that he has read all of this Severance Agreement and the quoted Civil Code Section, and that he fully understands all of the same, and that he has been given the opportunity, if he desires, to review the terms of this Severance Agreement and with counsel of his choosing.

 

(3)         Executive expressly declares and represents that no promise, inducement or agreement not herein expressed has been made to him and that this Severance Agreement contains the entire agreement between the parties concerning the subject matter of this Severance Agreement and supersedes all prior negotiations, discussions or agreements relating to the subject matter of this Severance Agreement; provided, however, that the Employment Agreement between the parties is incorporated and made a part of this Severance Agreement and remains in full force and effect.

 

(4)          Executive agrees that this Severance Agreement may be pled as a full and complete defense to, and may be used as the basis for an injunction against, any action, suit or other proceeding which may be prosecuted, instituted or attempted by Executive in breach hereof.  Executive further agrees that in the event an action or proceeding is instituted by Executive or the Company or any party released hereby in order to enforce the terms or provisions hereof, the prevailing party shall be entitled to an award of reasonable costs and attorneys’ fees.  This attorneys’ fee provision shall not apply to an action brought by Executive to challenge the enforceability of his waiver of rights under the Age Discrimination in Employment Act.

 

(5) The parties agree that this Severance Agreement shall bind Executive, his heirs, successors, agents, representatives and assigns, and each of them, and shall inure to the benefit of the successors and assigns of the respective parties hereto.

 

(6)          Executive has signed this Severance Agreement knowingly and voluntarily, and no promises or representations have been made to him to induce him to sign this Severance Agreement.

 

(7)          If Executive is under age 40 as of the date he signs this Severance Agreement, he understands that the acceptance procedures of this ¶ 7 apply to him.  Executive understands that he may take up to twenty-one (21) days to sign this Severance Agreement and the Severance Agreement shall be effective immediately upon the date of his signature (“Effective Date”).

 

 

(8)           If Executive is age 40 or over as of the date he signs this Severance Agreement, he understands that the acceptance procedures of this ¶ 8 apply to him.  Executive acknowledges and agrees that:  a) he has been advised to consult with an attorney before executing this Severance Agreement; b) he has been given at least twenty-one (21) days to consider and sign this Severance Agreement; c) Executive may revoke his acceptance of this Severance Agreement within seven days after he signs it by delivering a written revocation to the President, Chief Operating Officer so that such written revocation is received by no later than the seventh day; d) this Severance Agreement shall not be binding and enforceable until the eighth day after Executive signs this Severance Agreement without revoking it (“Effective Date”); and e) this Severance Agreement does not waive or release any rights or claims that Executive may have under the Age Discrimination in Employment Act that arise after execution of this Severance Agreement.

 

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

 

	
 
    	
REALTY INCOME CORPORATION
    	
EXECUTIVE
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Title:Exhibit 10.1

 

FORM OF

 

ADVISORY AGREEMENT

 

AMONG

 

STEADFAST APARTMENT REIT, INC.,

 

STEADFAST APARTMENT REIT OPERATING PARTNERSHIP, L.P.,

 

AND

 

STEADFAST APARTMENT ADVISOR, LLC

 

 

TABLE OF CONTENTS

 

	
1.
    	
Definitions
    	
1
    
	
 
    	
 
    	
 
    
	
2.
    	
Appointment
    	
7
    
	
 
    	
 
    	
 
    
	
3.
    	
Duties of the Advisor
    	
7
    
	
 
    	
 
    	
 
    
	
4.
    	
Authority of Advisor
    	
10
    
	
 
    	
 
    	
 
    
	
5.
    	
Bank Accounts
    	
11
    
	
 
    	
 
    	
 
    
	
6.
    	
Records; Access
    	
11
    
	
 
    	
 
    	
 
    
	
7.
    	
Limitations on Activities
    	
11
    
	
 
    	
 
    	
 
    
	
8.
    	
Relationship with Directors
    	
12
    
	
 
    	
 
    	
 
    
	
9.
    	
Fees
    	
12
    
	
 
    	
 
    	
 
    
	
10.
    	
Expenses
    	
13
    
	
 
    	
 
    	
 
    
	
11.
    	
Timing of Additional Limitations on Reimbursements to the   Advisor
    	
15
    
	
 
    	
 
    	
 
    
	
12.
    	
Other Services
    	
16
    
	
 
    	
 
    	
 
    
	
13.
    	
Voting Agreement
    	
16
    
	
 
    	
 
    	
 
    
	
14.
    	
Business Combinations
    	
16
    
	
 
    	
 
    	
 
    
	
15.
    	
Relationship of the Parties
    	
17
    
	
 
    	
 
    	
 
    
	
16.
    	
Other Activities of the Advisor
    	
17
    
	
 
    	
 
    	
 
    
	
17.
    	
The Steadfast Name
    	
17
    
	
 
    	
 
    	
 
    
	
18.
    	
Term of Agreement
    	
18
    
	
 
    	
 
    	
 
    
	
19.
    	
Termination by the Parties
    	
18
    
	
 
    	
 
    	
 
    
	
20.
    	
Payments to and Duties of Advisor Upon Termination
    	
18
    
	
 
    	
 
    	
 
    
	
21.
    	
Assignment to an Affiliate
    	
19
    
	
 
    	
 
    	
 
    
	
22.
    	
Indemnification by the Company and the Operating   Partnership
    	
19
    
	
 
    	
 
    	
 
    
	
23.
    	
Advancement of Legal Expenses
    	
20
    
	
 
    	
 
    	
 
    
	
24.
    	
Indemnification by Advisor
    	
20
    
	
 
    	
 
    	
 
    
	
25.
    	
Publicity
    	
20
    
	
 
    	
 
    	
 
    
	
26.
    	
Non-Solicitation
    	
20
    
	
 
    	
 
    	
 
    
	
27.
    	
Notices
    	
21
    
	
 
    	
 
    	
 
    
	
28.
    	
Modification
    	
21
    
	
 
    	
 
    	
 
    
	
29.
    	
Severability
    	
21
    
	
 
    	
 
    	
 
    
	
30.
    	
Construction
    	
21
    
	
 
    	
 
    	
 
    
	
31.
    	
Entire Agreement
    	
21
    
	
 
    	
 
    	
 
    
	
32.
    	
Indulgences, Not Waivers
    	
21
    
	
 
    	
 
    	
 
    
	
33.
    	
Gender
    	
22
    
	
 
    	
 
    	
 
    
	
34.
    	
Titles Not to Affect Interpretation
    	
22
    
	
 
    	
 
    	
 
    
	
35.
    	
Execution in Counterparts
    	
22
    

 

 

ADVISORY AGREEMENT

 

THIS ADVISORY AGREEMENT (this “Agreement”), dated as of the [    ] day of [    ], 2013, is entered into by and among Steadfast Apartment REIT, Inc., a Maryland corporation (the “Company”), Steadfast Apartment REIT Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), and Steadfast Apartment Advisor, LLC, a Delaware limited liability company (the “Advisor”).  Capitalized terms used herein shall have the meanings ascribed to them in Section 1 below.

 

W I T N E S S E T H

 

WHEREAS, the Company intends to qualify as a REIT and to invest its funds in investments permitted by the terms of Sections 856 through 860 of the Code;

 

WHEREAS, the Company is the general partner of the Operating Partnership, and the Company intends to conduct all of its business and make all or substantially all Investments through the Operating Partnership;

 

WHEREAS, the Company and the Operating Partnership desire to avail themselves of the knowledge, experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of the Board, all as provided herein; and

 

WHEREAS, the Advisor is willing to undertake to render such services on the terms and conditions hereinafter set forth.

 

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

 

1.             DEFINITIONS.  As used in this Agreement, the following terms have the meanings specified below:

 

Acquisition Expenses means any and all expenses, excluding Acquisition Fees and Loan Coordination Fees, incurred by the Company, the Operating Partnership, the Advisor, or any of their Affiliates in connection with the selection, evaluation, acquisition, origination or development of any Investments, whether or not acquired or originated, as applicable, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on properties or other investments not acquired, accounting fees and expenses, title insurance premiums, and the costs of performing due diligence.

 

Acquisition Fee means the fees payable to the Advisor pursuant to Section 9(a), plus all other fees and commissions, excluding Acquisition Expenses, in connection with making or investing in any Investment or the purchase, development or construction of any Real Estate Asset by the Company. Included in the computation of such fees or commissions shall be any real estate commission, origination fee, selection fee, development fee, construction fee, nonrecurring management fee, loan fees or points or any fee of a similar nature, however designated.  Excluded shall be development fees and construction fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Real Estate Asset.

 

Advisor means Steadfast Apartment Advisor, LLC, a Delaware limited liability company, any successor advisor to the Company and the Operating Partnership to which Steadfast Apartment Advisor, LLC or any successor advisor subcontracts substantially all of its functions.  Notwithstanding the foregoing, a Person hired or retained by Steadfast Apartment Advisor, LLC to perform property management and related services for the Company or the Operating Partnership that is not hired or retained to perform substantially all of the functions of Steadfast Apartment Advisor, LLC with respect to the Company or the Operating Partnership as a whole shall not be deemed to be an Advisor.

 

1

 

Affiliate or Affiliated means, with respect to any Person, (i) any Person directly or indirectly owning, controlling or holding, with the power to vote, ten percent (10%) or more of the outstanding voting securities of such other Person; (ii) any Person ten percent (10%) or more of its outstanding voting securities are directly or indirectly owned, controlled or held, with the power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person; and (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner of such other Person.  An entity shall not be deemed to control or be under common control with a program sponsored by the Sponsor unless (A) the entity owns 10% or more of the voting equity interests of such program or (B) a majority of the Board (or equivalent governing body) of such program is composed of Affiliates of the entity or general partner.

 

Articles of Incorporation means the Articles of Incorporation of the Company, as amended or restated from time to time.

 

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

 

Board means the board of directors of the Company, as of any particular time.

 

Bylaws means the bylaws of the Company, as amended or restated from time to time.

 

Cause means with respect to the termination of this Agreement, fraud, criminal conduct, willful misconduct, gross negligence or negligent breach of a fiduciary duty by the Advisor, or a material breach of this Agreement by the Advisor.

 

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

 

Company means Steadfast Apartment REIT, Inc., a Maryland corporation.

 

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

 

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

 

Cost of Investments means the sum of (i) with respect to acquisition or origination of an Investment to be wholly owned, directly or indirectly, by the Company, the amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of the Investment, inclusive of expenses associated with the making of such Investment and the amount of any debt associated with, or used to fund the investment in, such Investment, and (ii) with respect to the acquisition or origination of an Investment through any Joint Venture, the portion of the amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of the Investment, inclusive of expenses associated with the making of such Investment, plus the amount of any debt associated with, or used to fund the investment in, such Investment that is attributable to the Company’s investment in such Joint Venture.

 

2

 

Dealer Manager means Steadfast Capital Markets Group, LLC (or any successor thereto) or such other Person or entity selected by the Board to act as the dealer manager for a Public Offering.

 

Dealer Manager Fee means 3.0% of Gross Proceeds from the sale of each Share in a Public Offering, payable to the Dealer Manager for serving as the dealer manager of such Public Offering (excluding the Gross Proceeds received by the Company pursuant to the Company’s distribution reinvestment plan). The Dealer Manager Fee will be reduced to 2.0% of Gross Proceeds from the sale of each Share in a Public Offering in the event a Participating Dealer elects to receive the 8.0% trailing Sales Commissions as described in the Prospectus.

 

Director means a member of the Board.

 

Disposition Fee means the fees payable to the Advisor pursuant to Section 9(c).

 

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

 

Effective Date means the commencement date of the Initial Public Offering.

 

Excess Amount shall have the meaning set forth in Section 11(d).

 

Expense Year shall have the meaning set forth in Section 11(d).

 

Funds From Operations means the Company’s funds from operations, a non-GAAP financial measure, which is calculated based on net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and non-cash impairment charges of real estate-related investments, plus real estate-related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

 

FINRA means the Financial Industry Regulatory Authority, Inc. and any successor thereto.

 

GAAP means generally accepted accounting principles as in effect in the United States of America from time to time.

 

Good Reason means either (i) any failure to obtain a satisfactory agreement from any successor to the Company or the Operating Partnership to assume and agree to perform the Company’s and the Operating Partnership’s obligations under this Agreement or (ii) any material breach of this Agreement of any nature whatsoever by the Company or the Operating Partnership.

 

Gross Proceeds means the aggregate purchase price of all Shares sold for the account of the Company through all Public Offerings, without deduction for Sales Commissions, Dealer Manager Fees or Organization and Offering Expenses.  For the purpose of computing Gross Proceeds, the purchase price of any Share for which reduced Sales Commissions or Dealer Manager Fees are paid to the Dealer Manager or a Participating Dealer (where net proceeds to the Company are not reduced) shall be deemed to be the full amount of the offering price per Share pursuant to the Prospectus for such Public Offering without reduction.

 

Indemnitee shall have the meaning set forth in Section 22.

 

3

 

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

 

Initial Public Offering means the initial public offering of Shares registered pursuant to the Registration Statement.

 

Investments means any investments by the Company or the Operating Partnership in Real Estate Assets, Real Estate-Related Assets or other investments in which the Company or the Operating Partnership may acquire an interest, either directly or indirectly, including through an ownership interest in a Joint Venture, pursuant to its Articles of Incorporation, Bylaws and the investment objectives and policies adopted by the Board from time to time, other than short-term investments acquired for the purpose of cash management.

 

Investment Management Fee means the fees payable to the Advisor pursuant to Section 9(d).

 

Joint Venture means the joint venture, limited liability company, partnership or other entity pursuant to which the Company is a co-venturer or partner with respect to the ownership of any Investments.

 

Listing means the listing of the Shares on (i) a U.S. national securities exchange; (ii) a non-U.S. national securities exchange that is officially recognized, sanctioned or supervised by a governmental authority; or (iii) any over-the-counter market.  Upon such Listing, the Shares shall be deemed “Listed.”

 

Loan Coordination Fee means the fees payable to the Advisor pursuant to Section 9(e).

 

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.

 

Modified Funds From Operations means the Company’s modified funds from operations, a non-GAAP financial measure, which is calculated based on Funds From Operations adjusted for the following items, as applicable, included in the determination of net income computed in accordance with GAAP: Acquisition Fees and Acquisition Expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities; accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting; and after adjustments for consolidated and unconsolidated partnerships and joint ventures.

 

NASAA REIT Guidelines means the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association as in effect on the Effective Date, as may be modified from time to time.

 

Net Income means, for any period, the Company’s total revenues applicable to such period, less the total expenses applicable to such period other than additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Company’s assets.

 

Operating Expenses means all costs and expenses incurred by the Company, as determined under GAAP, that in any way are related to the operation of the Company or its business, including fees paid to the Advisor, but excluding (i) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as 

 

4

 

depreciation, amortization and bad debt reserves, (v) incentive fees paid in compliance with the NASAA REIT Guidelines, (vi) Acquisition Fees and Acquisition Expenses, and (vii) other fees and expenses connected with the acquisition, disposition, management and ownership of real estate interests, mortgages or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of property).  The definition of “Operating Expenses” set forth above is intended to encompass only those expenses that are required to be treated as Total Operating Expenses under the NASAA REIT Guidelines.  As a result, and notwithstanding the definition set forth above, any expense of the Company that is not part of Total Operating Expenses under the NASAA REIT Guidelines shall not be treated as part of Operating Expenses for purposes hereof.

 

Operating Partnership shall mean Steadfast Apartment REIT Operating Partnership, L.P., a Delaware limited partnership.

 

Operating Partnership Agreement means the Limited Partnership Agreement by and among the Company, the Operating Partnership and the Advisor, as amended or restated from time to time.

 

Organization and Offering Expenses means any and all costs and expenses incurred by or on behalf of the Company in connection with the formation of the Company, the qualification and registration of a Public Offering, and the marketing and distribution of Shares, including, without limitation, total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys), expenses for printing, engraving, amending and supplementing registration statements and prospectuses, mailing and distributing costs, salaries of employees while engaged in sales activity, telephone and other telecommunications costs, all advertising and marketing expenses, information technology costs, charges of transfer agents, registrars, trustees, escrow holders, depositories and experts and fees, expenses and taxes related to the filing, registration and qualification of the sale of the Shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees.

 

Participating Dealers means broker-dealers who are members of FINRA or that are exempt from broker-dealer registration, and who, in either case, have executed participating dealer or other agreements with the Dealer Manager to sell Shares in a Public Offering.

 

Person means an individual, corporation, partnership, trust, joint venture, limited liability company or other entity.

 

Property Manager means an entity that has been retained to perform and carry out property-management services at one or more of the Real Estate Assets, excluding Persons retained or hired to perform facility management or other services or tasks at a particular Real Estate Asset, the costs for which are passed through to and ultimately paid by the tenant at such Real Estate Asset.

 

Prospectus means a “Prospectus” under Section 2(10) of the Securities Act, including a preliminary Prospectus, an offering circular as described in Rule 253 of the General Rules and Regulations under the Securities Act or, in the case of an intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling securities to the public.

 

Public Offering means a public offering of Shares pursuant to a Prospectus.

 

Real Estate Assets means any investment by the Company or the Operating Partnership in unimproved and improved Real Property (including, without limitation, fee or leasehold interests, options and leases) either directly or through a Joint Venture.

 

Real Estate-Related Assets means any investments by the Company or the Operating Partnership in, or origination of, mortgage loans and other types of real estate-related debt financing, including, without limitation, mezzanine loans, bridge loans, convertible mortgages, construction mortgage loans, loans on leasehold interests and participations in such loans, as well as real estate debt securities and equity securities of other real estate companies and REITs.

 

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Real Property means real property owned from time to time by the Company or the Operating Partnership, either directly or through joint venture arrangements or other partnerships, which consists of (i) land only, (ii) land, including the buildings and improvements located thereon, (iii) buildings and improvements only, or (iv) such investments the Board and the Advisor mutually designate as Real Property to the extent such investments could be classified as Real Property.

 

Registration Statement means the registration statement filed by the Company with the SEC on Form S-11 (Reg. No. 333-            ), as amended from time to time, in connection with the Initial Public Offering.

 

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

 

Sale or Sales means any transaction or series of transactions whereby: (i) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any Investment or portion thereof, including the lease of any Real Property consisting of a building only, and including any event with respect to any Real Property which gives rise to a significant amount of insurance proceeds or condemnation awards; (ii) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Operating Partnership in any Joint Venture in which it is a co-venturer or partner; (iii) any Joint Venture directly or indirectly (except as described in other subsections of this definition) in which the Company or the Operating Partnership as a co-venturer or partner sells, grants, transfers, conveys, or relinquishes its ownership of any Investment or portion thereof, including any event with respect to any Real Property which gives rise to a significant amount of insurance proceeds or similar awards; (iv) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, conveys or relinquishes its interest in any Real Estate-Related Assets or portion thereof (including with respect to any Real Estate-Related Investment, all payments thereunder or in satisfaction thereof other than regularly scheduled interest payments) and any event which gives rise to a significant amount of insurance proceeds or similar awards; (v) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any other asset not previously described in this definition or any portion thereof; or (v) any other transaction or series of transactions that the Board deems to be a Sale.

 

Sales Commissions means 7.0% of Gross Proceeds from the sale of each Share in a Public Offering payable to the Dealer Manager and reallowable to Participating Dealers with respect to Shares sold by them (in each case excluding the proceeds received by the Company pursuant to the Company’s distribution reinvestment plan).  Alternatively, the Participating Dealer may elect to receive a trailing Sales Commission equal to an up-front fee of 3.0% of Gross Proceeds from the sale of each Share in a Public Offering, with 3.0% of Gross Proceeds from the sale of each Share in a Public Offering paid on the first anniversary of the initial sale of Shares, and 2.0% of Gross Proceeds from the sale of each Share in a Public Offering paid on the second anniversary of the initial sale of Shares, as more particularly described in the Prospectus.  In the event that the Participating Dealer elects to receive the 8.0% trailing Sales Commission, the Dealer Manager Fee will be reduced from 3.0% of Gross Proceeds from the sale of each Share in a Public Offering to 2.0% of Gross Proceeds from the sale of each Share in a Public Offering.

 

SEC means the Securities and Exchange Commission.

 

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

 

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

 

Special Committee has the meaning as provided in Section 14.

 

Sponsor means Steadfast REIT Investment, LLC, a Delaware limited liability company.

 

Stockholders mean the registered holders of the Shares.

 

Termination Date means the date of termination of this Agreement.

 

2%/25% Guidelines has the meaning set forth in Section 11(d).

 

2.             APPOINTMENT.  The Company and the Operating Partnership hereby appoint the Advisor to serve as their advisor on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.

 

3.             DUTIES OF THE ADVISOR.  The Advisor is responsible for managing, operating, directing and supervising the operations and administration of the Company and its Investments.  The Advisor undertakes to present to the Company potential investment opportunities, to make investment decisions on behalf of the Company subject to the limitations in the Articles of Incorporation and the direction and oversight of the Board and to provide the Company with a continuing and suitable investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board.  In performance of this undertaking, subject to the supervision of the Board and consistent with the provisions of the Articles of Incorporation, Bylaws and the Operating Partnership Agreement, the Advisor shall perform the duties described in this Section 3.

 

(a)       Offering Services.  The Advisor shall manage and supervise, in connection with any Public Offering:

 

(i)            the development of the Initial Public Offering and any subsequent Public Offering approved by the Board, including the determination of the specific terms of the securities to be offered by the Company, preparation of all offering and related documents, and obtaining all required regulatory approvals of such documents;

 

(ii)           along with the Dealer Manager, the approval of the Participating Dealers and negotiation of the related selling agreements;

 

(iii)          along with the Dealer Manager, the coordination of the due diligence process relating to Participating Dealers and their review of the Registration Statement and other Public Offering documents;

 

(iv)          along with the Dealer Manager, the preparation of all marketing materials contemplated to be used by the Dealer Manager or others relating to any Public Offering;

 

(v)           along with the Dealer Manager, the negotiation and coordination with the transfer agent for the receipt, collection, processing and acceptance of subscription agreements, commissions, and other administrative support functions;

 

(vi)          along with the Dealer Manager, the creation and implementation of various technology and electronic communications related to any Public Offering; and

 

(vii)         all other services related to any Public Offering, other than services that (a) are to be performed by the Dealer Manager, (b) the Company elects to perform directly or (c) would require the Advisor to register as a broker-dealer with the SEC, FINRA or any state.

 

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(b)       Acquisition Services.  The Advisor shall:

 

(i)            subject to Section 4 hereof and the investment objectives and policies of the Company: (a) locate, analyze and select potential investments; (b) structure and negotiate the terms and conditions of transactions pursuant to which such investments will be made; and (c) acquire such investments on behalf of the Company;

 

(ii)           oversee the due diligence process related to prospective Investments;

 

(iii)          prepare reports regarding prospective Investments which include recommendations and supporting documentation necessary for the Board to evaluate the prospective Investments; and

 

(iv)          obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate in the judgment of the Advisor, concerning the value of prospective Investments.

 

(c)       Investment Management Services.  The Advisor shall:

 

(i)            serve as the Company’s investment and financial advisor and obtain certain market research and economic and statistical data in connection with the Investments and investment objectives and policies;

 

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

 

(iii)              monitor applicable markets and obtain reports where appropriate in the judgment of the Advisor, concerning the value of the Investments;

 

(iv)              monitor and evaluate the performance of the Investments, provide daily investment management services to the Company and perform and supervise the various investment management and operational functions related to the Investments;

 

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

 

(vi)              oversee the performance by the Property Managers of their duties, including collection and proper deposits of rental payments and payment of Real Estate Asset expenses and maintenance;

 

(vii)             conduct periodic on-site property visits (as the Advisor deems reasonably necessary) to some or all of the Real Estate Assets to inspect the physical condition of the Real Estate Assets and to evaluate the performance of the Property Managers;

(viii)            review, analyze and comment upon the operating budgets, capital budgets and leasing plans prepared and submitted by each Property Manager and aggregate these property budgets into the Company’s overall budget;

 

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(ix)              coordinate and manage relationships between the Company and any Joint Venture partners; and

 

(x)               provide financial and operational planning services and investment portfolio management functions, including, without limitation, the planning and implementation of establishing the Company’s net asset value and obtaining appraisals and valuations with respect to Investments.

 

(d)       Accounting and Other Administrative Services.  The Advisor shall:

 

(i)            manage and perform the various administrative functions necessary for the management of the day-to-day operations of the Company;

 

(ii)           from time-to-time, or at any time reasonably requested by the Board, make reports to the Board on the Advisor’s performance of services to the Company under this Agreement;

 

(iii)          coordinate with the Company’s independent accountants and auditors to prepare and deliver to the Board’s audit committee an annual report covering the Advisor’s compliance with certain material aspects of this Agreement;

 

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

 

(v)           maintain accounting data and any other information concerning the activities of the Company as shall be needed to prepare and file all periodic financial reports and returns required to be filed with the SEC and any other regulatory agency, including annual financial statements;

 

(vi)          maintain all books and records of the Company;

 

(vii)         oversee tax and compliance services and risk management services and coordinate with third parties engaged by the Company, including independent accountants and other consultants, on related tax matters;

 

(viii)        supervise the performance of such ministerial and administrative functions as may be necessary in connection with the daily operations of the Company;

 

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

 

(x)           manage and coordinate with the transfer agent the Distribution process and payments to Stockholders;

 

(xi)          at any time reasonably requested by the Board, consult with the Board and assist in evaluating and obtaining adequate property insurance coverage based upon risk management determinations;

 

(xii)         provide the officers of the Company and the Board with timely updates related to the overall regulatory environment affecting the Company, as well as managing compliance with such matters;

 

(xiii)        consult with the Board relating to the corporate governance structure and the policies and procedures related thereto; and

 

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(xiv)        oversee all reporting, record keeping, internal controls and similar matters in a manner to allow the Company to comply with applicable law including the Sarbanes-Oxley Act of 2002.

 

(e)       Stockholder Services.  The Advisor shall:

 

(i)            along with the Dealer Manager, manage communications with Stockholders, including answering phone calls, preparing and sending written and electronic reports and other communications; and

 

(ii)           along with the Dealer Manager, establish technology infrastructure to assist in providing Stockholder support and service.

 

(f)        Financing Services.  The Advisor shall:

 

(i)            identify and evaluate potential financing and refinancing sources, engaging a third-party broker if necessary;

 

(ii)           negotiate terms, arrange and execute financing agreements;

 

(iii)          manage relationships between the Company and its lenders; and

 

(iv)          monitor and oversee the service of the Company’s debt facilities and other financings.

 

(g)       Disposition Services.  The Advisor shall:

 

(i)            consult with the Board and provide assistance with the evaluation and approval of potential Investment dispositions, sales or other liquidity events; and

 

(ii)           structure and negotiate the terms and conditions of transactions pursuant to which Investments may be sold.

 

4.             AUTHORITY OF ADVISOR.

 

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

 

(b)           Notwithstanding the foregoing, the Advisor may not take any action on behalf of the Company without the prior approval of the Board or duly authorized committees thereof if the Articles of Incorporation or Maryland General Corporation Law require the prior approval of the Board. The Advisor will deliver to the Board all documents and other information required by the Board to evaluate a proposed investment (and any financing related to such proposed investment).

 

(c)           If a transaction requires approval by the Independent Directors, the Advisor will deliver to the Independent Directors all documents and other information required by them to properly evaluate the proposed transaction.

 

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

 

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

 

5.             BANK ACCOUNTS.  The Advisor shall establish and maintain one or more bank accounts in the name of the Company and the Operating Partnership 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 the Operating Partnership, under such terms and conditions as the Board may approve, provided that no funds shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render, upon request by the Board, its audit committee or the auditors of the Company, appropriate accountings of such collections and payments to the Board and to the auditors of the Company.

 

6.             RECORDS; ACCESS.  The Advisor, in the conduct of its responsibilities to the Company, shall maintain adequate and separate books and records for the Company’s operations in accordance with GAAP, which shall be supported by sufficient documentation to ascertain that such books and records are properly and accurately recorded.  Such books and records shall be the property of the Company and shall be available for inspection by the Board and by counsel, auditors and other authorized agents of the Company, at any time or from time to time during normal business hours.  Such books and records shall include all information necessary to calculate and audit the fees and expense reimbursements paid under this Agreement. The Advisor shall utilize procedures to attempt to ensure such control over accounting and financial transactions as is reasonably required to protect the Company’s assets from theft, error or fraudulent activity. All financial statements that the Advisor delivers to the Company shall be prepared on an accrual basis in accordance with GAAP, except for special financial reports that by their nature require a deviation from GAAP. The Advisor shall liaise with the Company’s officers and independent auditors and shall provide such officers and auditors with the reports and such other information that the Company requests.

 

7.             LIMITATIONS ON ACTIVITIES.   Notwithstanding any provision in this Agreement to the contrary, the Advisor shall not take any action that, in its sole judgment made in good faith, would (a) adversely affect the ability of the Company to qualify or continue to qualify as a REIT under the Code unless the Board has determined that the Company will not seek or maintain REIT qualification for the Company, (b) subject the Company to regulation under the Investment Company Act of 1940, as amended, (c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, its Shares or its other securities, (d) require the Advisor to register as a broker-dealer with the SEC, FINRA or any state, or (e) violate the Articles of Incorporation or Bylaws.  In the event that an action would violate any of (a) through (e) of the preceding sentence but such action has been ordered by the Board, the Advisor shall notify the Board of the Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board.  In such event, the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given.  Notwithstanding the foregoing, the Advisor, its managers, officers, employees and members, and the partners, directors, officers, managers, members and stockholders of the Advisor’s Affiliates shall not be liable to the Company or to the Directors or Stockholders for any act or omission by the Advisor, its directors, officers, employees, or members, and the partners, directors, officers, managers, members or stockholders of the Advisor’s Affiliates taken or omitted to be taken in the performance of their duties under this Agreement except as provided in Section 24 of this Agreement.

 

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8.             RELATIONSHIP WITH DIRECTORS.  Subject to Section 7 of this Agreement and to restrictions advisable with respect to the qualification of the Company as a REIT, directors, officers and employees of the Advisor or an Affiliate of the Advisor may serve as a Director and as officers of the Company, except that no director, officer or employee of the Advisor or its Affiliates who also is a Director or officer of the Company shall receive any compensation from the Company for serving as a Director or officer other than reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board and no such Director shall be deemed an Independent Director for purposes of satisfying the Director independence requirement set forth in the Articles of Incorporation.

 

9.             FEES.  The Company shall pay the Advisor the following fees subject to the conditions set forth below.

 

(a)           Acquisition Fees.  The Advisor shall receive an Acquisition Fee payable by the Company as compensation for services rendered in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of Investments as set forth in Section 3(b) hereof.  The total Acquisition Fees payable to the Advisor or its Affiliates shall equal 1.0% of (1) the Cost of Investment or (2) the Company’s allocable portion of the purchase price in connection with the acquisition or origination of any Investment acquired through a Joint Venture.  Notwithstanding anything herein to the contrary, the payment of Acquisition Fees by the Company shall be subject to the limitations on acquisition fees contained in (and defined in) the Articles of Incorporation.  The Advisor shall submit an invoice to the Company following the closing of each Investment, accompanied by a computation of the Acquisition Fee. Generally the Acquisition Fee shall be paid to the Advisor at the closing of the transaction upon receipt of the invoice by the Company; provided, however, that such Acquisition Fee shall be paid to an Affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable laws or regulations prohibit such payment to be made to a Person that is not a FINRA member broker-dealer.  In addition, payment of the Acquisition Fee may be deferred, in whole or in part, as to any transaction in the sole discretion of the Advisor.  Any such deferred Acquisition Fees shall be paid to the Advisor without interest at such subsequent date as the Advisor shall request.

 

(b)           Limitation on Total Acquisition Fees, Origination Fees and Acquisition Expenses.  In no event will the total of all Acquisition Fees and Acquisition Expenses (including any Loan Coordination Fee) payable with respect to a particular Investment exceed 4.5% of the “Contract Price for the Property,” as defined in the NASAA REIT Guidelines, unless a majority of the Independent Directors approves the Acquisition Fees and Acquisition Expenses and determines the transaction to be commercially competitive, fair and reasonable to the Company.

 

(c)           Disposition Fee.  In connection with a Sale of an Investment in which the Advisor or any Affiliate of the Advisor provides a substantial amount of services as determined by a majority of the Independent Directors, the Company shall pay to the Advisor or its Affiliate a Disposition Fee up to one-half of the Competitive Real Estate Commission paid, but in no event to exceed 3.0% of the Sales Price of the Investment sold.  Any Disposition Fee payable under this Section 9(c) may be paid in addition to real estate commissions paid to non-Affiliates, provided that the total real estate commissions (including such Disposition Fee) paid to all Persons by the Company for the Sale of each Real Estate Asset shall not exceed the lesser of the Competitive Real Estate Commission or an amount equal to 6.0% of the Contract Sales Price.  Substantial assistance in connection with a Sale may include the preparation of an investment package (for example, a package including a new investment analysis, rent rolls, Argus projections, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or other such substantial services performed in connection with a Sale.  The Advisor shall submit an invoice to the Company following the closing or closings of each disposition, 

 

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accompanied by a computation of the Disposition Fee.  Generally, the Disposition Fee shall be paid to the Advisor at the closing of the transaction upon receipt of the invoice by the Company; provided, however, that such Disposition Fee shall be paid to an Affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable laws or regulations prohibit such payment to be made to a Person that is not a FINRA member broker-dealer.  In addition, payment of the Disposition Fee may be deferred, in whole or in part, as to any transaction in the sole discretion of the Advisor.  Any such deferred Disposition Fees shall be paid to the Advisor without interest at such subsequent date as the Advisor shall request.

 

(d)           Investment Management Fee.  The Advisor shall receive the Investment Management Fee as compensation for services rendered in connection with the management of the Company’s assets as set forth in Section 3(c) hereof.  The Investment Management Fee shall be equal to an annual fee of 1.0%, payable monthly, of the Cost of Investments.  The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the Investment Management Fee for the applicable period.  Generally, the Investment Management Fee payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month.  In addition, payments of the Investment Management Fee may be deferred, in whole or in part, as to any transaction in the sole discretion of the Advisor.  Any such deferred Investment Management Fee shall be paid to the Advisor without interest at such subsequent date as the Advisor shall request.

 

In addition, the Advisor shall receive a quarterly incentive performance fee equal to one-fourth of 0.25% (or 0.0625%) of the Cost of Investments promptly following the end of each calendar quarter in which the Company has paid Distributions to Stockholders in an amount equal to or greater than an average 6.0% annualized rate from our Modified Funds From Operations for such calendar quarter.

 

(e)           Loan Coordination Fee.  The Company will pay the Advisor or one of its Affiliates the Loan Coordination Fee equal to 1.0% of (1) the initial amount of new debt financed or outstanding debt assumed in connection with the acquisition, development, construction, improvement or origination of any type of Real Estate Asset or Real Estate-Related Asset acquired directly or (2) the Company’s allocable portion of the purchase price and therefore the related debt in connection with the acquisition or origination of any type of Real Estate Asset or Real Estate-Related Asset acquired through a Joint Venture.

 

As compensation for services rendered in connection with any financing or the refinancing of any debt (in each case, other than at the time of the acquisition of a property), the Company will also pay the Advisor or one of its Affiliates a Loan Coordination Fee equal to 0.75% of the amount refinanced or the Company’s proportionate share of the amount refinanced in the case of Investments made through a Joint Venture.

 

(f)            Form of Payment.  Except if a form of payment or distribution is specifically provided for, the Advisor may, in its sole discretion, elect to have any of the fees paid pursuant to this Section 9, in whole or in part, in cash or Shares. The price of any Shares issued pursuant to this Section 9(f) shall be at the Public Offering price or if the Company is not conducting a Public Offering, at the most recent value per Share determined by the Board.

 

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

 

10.          EXPENSES.  In addition to the compensation paid to the Advisor pursuant to Section 9 hereof, the Company or the Operating Partnership shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor or its Affiliates in connection with the services it provides to the Company and the Operating Partnership pursuant to this Agreement, including, but not limited to:

 

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(a)           Organization and Offering Expenses; provided, however, that (i) the Company shall not reimburse the Advisor to the extent such reimbursement would cause the total amount of Organization and Offering Expenses attributable to the Initial Public Offering paid by the Company and the Operating Partnership to exceed 15.0% of the Gross Proceeds from the Initial Public Offering raised as of the date of the reimbursement; (ii) within 60 days after the end of the month in which a Public Offering terminates, the Advisor shall reimburse the Company to the extent the Company incurred Organization and Offering Expenses attributable to such Public Offering exceeding 15.0% of the Gross Proceeds raised in the completed Public Offering; and (iii) the Company shall not reimburse the Advisor for any Organization and Offering Expenses that the Independent Directors determine are not fair and commercially reasonable to the Company;

 

(b)           Acquisition Expenses incurred in connection with the selection, evaluation and acquisition of Investments (including the reimbursement of any acquisition expenses incurred by the Advisor and payable to third parties that are not Affiliates of the Company); provided, however, that the total of all Acquisition Fees and Acquisition Expenses (including any Loan Coordination Fee) payable in connection with a particular Investment may not exceed 4.5% of the “Contract Price for the Property,” as defined in the NASAA REIT Guidelines, unless a majority of the Independent Directors approves the Acquisition Fees and Acquisition Expenses and determines the transaction to be commercially competitive, fair and reasonable to the Company;

 

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

 

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

 

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

 

(f)            out-of-pocket costs associated with insurance obtained in connection with the business of the Company or by its officers or the Board;

 

(g)           expenses of managing, improving, developing and operating Real Estate Assets owned by the Company, as well as expenses of other transactions relating to an Investment, including but not limited to prepayments, maturities, workouts and other settlements of Loans and other Investments;

 

(h)           all out-of-pocket expenses in connection with payments to the Directors for attending meetings of the Board and Stockholders;

 

(i)            expenses associated with a Listing or sale or merger of the Company if the Advisor or its Affiliate provides a substantial amount of services in connection with such Listing or a sale or merger, including but not limited to the Company’s allocable share of the Advisor’s employee costs, travel and communications expenses, costs of appraisals and due diligence reports, market surveys and research, third-party brokerage or finder’s fees and other closing costs regardless of whether the Company completes any such transaction;

 

(j)            expenses connected with payments of Distributions;

 

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(k)           expenses associated with the issuance and distribution of Shares and other securities of the Company, such as underwriting fees, advertising expenses, legal and accounting fees, taxes and registration fees;

 

(l)            expenses incurred in connections with the formation, organization and continuation of any corporation, partnership, Joint Venture or other entity through which the Company’s investments are made or in which any such entity invests;

 

(m)          expenses of organizing, redomesticating converting, modifying, merging, liquidating, dissolving or terminating the Company or any subsidiary thereof or amending or revising the Articles of Incorporation or governing documents of any subsidiary;

 

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

 

(o)           personnel and related employment costs incurred by the Advisor or its Affiliates in performing the services described in Section 3 hereof, including but not limited to reasonable salaries and wages, benefits and overhead of all employees directly involved in the performance of such services, provided that no reimbursement shall be made for costs of such employees of the Advisor or its Affiliates to the extent that such employees perform services for which the Advisor receives Acquisition Fees, Investment Management Fees, Disposition Fees or Loan Coordination Fees and provided further that if the Advisor subsequently determines to seek reimbursement for personnel costs of individuals who serve as executive officers of the Company, the Company will disclose any such reimbursement in its next quarterly or annual report filed pursuant to SEC requirements;

 

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

 

(q)           out-of-pocket costs for the Company to comply with all applicable laws, regulations and ordinances, including without limitation, the Sarbanes-Oxley Act of 2002, as amended; and

 

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

 

11.          TIMING OF ADDITIONAL LIMITATIONS ON REIMBURSEMENTS TO THE ADVISOR.

 

(a)           Expenses incurred by the Advisor on behalf of the Company and the Operating Partnership and payable pursuant to Section 10 shall be reimbursed no less than monthly to the Advisor.

 

(b)           The Advisor shall prepare a statement documenting the expenses of the Company and the Operating Partnership during each month, and shall deliver such statement to the Company and the Operating Partnership within 20 days after the end of each month.  The Advisor shall also prepare a statement documenting the expenses of the Company and Operating Partnership during each quarter, and shall deliver such statement to the Company and Operating Partnership within 30 days after the end of each quarter.

 

(c)           Notwithstanding anything else in this Section 11 to the contrary, the expenses enumerated in Section 10 shall not become reimbursable to the Advisor unless and until the Company raises $2 million in Gross Proceeds pursuant to the Initial Public Offering.

 

15

 

(d)           Commencing with the end of the fourth fiscal quarter following the fiscal quarter in which the Company completes its first Investment, the Company shall not reimburse the Advisor at the end of any fiscal quarter in which Operating Expenses for the four consecutive fiscal quarters then ended (the “Expense Year”) exceed (the “Excess Amount”) the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”) for such year.  Any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company or, at the option of the Company, subtracted from the Operating Expenses reimbursed during the subsequent fiscal quarter.  If there is an Excess Amount in any Expense Year and the Independent Directors determine that such excess was justified based on unusual and nonrecurring factors which they deem sufficient, then the Excess Amount may be carried over and included in Operating Expenses in subsequent Expense Years and reimbursed to the Advisor in one or more of such years, provided that there shall be sent to the Stockholders a written disclosure of such fact, together with an explanation of the factors the Independent Directors considered in determining that such excess expenses were justified.  Such determination shall be reflected in the minutes of the meetings of the Board.  All figures used in the foregoing computation shall be determined in accordance with GAAP applied on a consistent basis.

 

12.          OTHER SERVICES.  In the event that (a) the Board requests that the Advisor or any manager, officer or employee thereof render services for the Company other than as set forth in this Agreement or (b) there are changes to the regulatory environment in which the Advisor or Company operates that would increase significantly the level of services performed such that the costs and expenses borne by the Advisor for which the Advisor is not entitled to separate reimbursement for personnel and related employment direct costs and overhead under Section 10 of this Agreement would increase significantly, such services shall be separately compensated at such rates and in such amounts as are agreed by the Advisor and 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.

 

13.          VOTING AGREEMENT.  The Advisor agrees that, with respect to any Shares now or hereinafter owned by it, it will not vote or consent on matters submitted to the Stockholders of the Company regarding (a) the removal of the Advisor or any of its Affiliates as the Advisor or (b) any transaction between the Company and the Advisor or any of its Affiliates.  This voting restriction shall survive until such time that the Advisor or any of its Affiliates is no longer serving as the Company’s external advisor.

 

14.          BUSINESS COMBINATIONS.

 

(a)           The Company may consider becoming a self-administered REIT once the Company’s assets and income are, in the view of the Board, of sufficient size such that internalizing the management functions performed by the Advisor is in the best interests of the Company and the Stockholders.  If the Board should make this determination in the future, the Board shall form a special committee (the “Special Committee”) comprised entirely of Independent Directors to consider a possible business combination with the Advisor.  The Board shall, subject to applicable law, delegate all of its decision-making power and authority to the Special Committee with respect to matters relating to a possible business combination with the Advisor.  The Special Committee also shall be authorized to retain its own financial advisors and legal counsel to, among other things, negotiate with representatives of the Advisor regarding a possible business combination with the Advisor.

 

(b)           If the Board elects to internalize any management services provided by the Advisor, neither the Company nor the Operating Partnership shall pay any compensation or other remuneration to the Advisor or its Affiliates in connection with such internalization of management services. Notwithstanding the above, to the extent the Advisor or Sponsor performs substantial services or incurs costs in connection with any transition-related services performed by the Advisor, the Company, with the approval of the Independent Directors, will pay the Advisor for such services and shall reimburse the Advisor for expenses and costs reasonably incurred as a result of such services.

 

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15.          RELATIONSHIP OF THE PARTIES.  The Company and the Operating Partnership, on the one hand, and the Advisor on the other, are not partners of joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners of joint venturers or impose any liability as such on either of them.

 

16.          OTHER ACTIVITIES OF THE ADVISOR.

 

(a)           Nothing herein contained shall prevent the Advisor 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 the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of any director, officer, manager, member, partner, employee or stockholder of the Advisor or its Affiliates to engage in or earn fees from any other business or to render services of any kind to any other Person and earn fees for rendering such services; provided, however, that the Advisor must devote sufficient resources to the Company’s business to discharge its obligations to the Company under this Agreement.  The Advisor may, with respect to any Investment in which the Company is a participant, also render advice and service to each and every other participant therein, and earn fees for rendering such advice and service.  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 Advisor may be engaged to provide advice and service to such Persons, in which case the Advisor will earn fees for rendering such advice and service. For the avoidance of doubt, it is understood that neither the Company nor the Board has the authority to determine the salary, bonus or any other compensation paid by the Advisor to any Director, officer, member, partner, employee, or stockholder of the Advisor or its Affiliates, including any person who is also a director or officer employee of the Company.

 

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

 

(c)           The Advisor shall be required to use commercially reasonable efforts to present continuing and suitable investment opportunities to the Company that are consistent with the investment policies and objectives of the Company, but neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to the Company even if the opportunity is of character that, if presented to the Company, could be taken by the Company.  In the event an investment opportunity is located, the allocation procedure set forth under the caption “Conflicts of Interest—Conflict Resolution Procedures—Allocation of Investment Opportunities” in the Registration Statement shall govern the allocation of the opportunity among the Company and Affiliates of the Advisor.  The Advisor shall be required to notify the Board at least annually of Investments that have been purchased by other entities managed by the Advisor or its Affiliates for determination by the Board that the Advisor is fairly presenting investment opportunities to the Company.

 

17.          THE STEADFAST NAME.  The Advisor and its Affiliates have a proprietary interest in the name “Steadfast.”  The Advisor hereby grants to the Company a non-transferable, non-assignable, non-exclusive, royalty-free right and license to use the name “Steadfast” during the term of this Agreement. Accordingly, and in recognition of this right, if at any time the Company ceases to retain the 

 

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

 

18.          TERM OF AGREEMENT.  This Agreement shall have an initial term of one year from the Effective Date and may be renewed for an unlimited number of successive one-year terms upon mutual consent of the parties.  The Company (acting through the Independent Directors) will evaluate the performance of the Advisor annually before renewing this Agreement, and each such renewal shall be for a term of no more than one year.  Any such renewal must be approved by the Independent Directors.

 

19.          TERMINATION BY THE PARTIES.  This Agreement may be terminated:

 

(a)               immediately by the Company or the Operating Partnership for Cause or upon the bankruptcy of the Advisor;

 

(b)               upon 60 days written notice without Cause and without penalty by a majority of the Independent Directors of the Company; or

 

(c)               upon 60 days written notice with Good Reason by the Advisor.

 

The provisions of Sections 17 and 20 through 35 of this Agreement survive termination of this Agreement.

 

20.          PAYMENTS TO AND DUTIES OF ADVISOR UPON TERMINATION.

 

(a)           After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company or the Operating Partnership within 30 days after the effective date of such Termination Date all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement, subject to the 2%/25% Guidelines to the extent applicable.

 

(b)           The Advisor shall promptly upon termination:

 

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

 

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

 

(iii)          deliver to the Board all assets, including all Investments, and documents of the Company and the Operating Partnership then in the custody of the Advisor; and

 

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(iv)          reasonably cooperate with the Company and the Operating Partnership to provide an orderly management transition.

 

21.          ASSIGNMENT TO AN AFFILIATE.  This Agreement may be assigned by the Advisor to an Affiliate only with the prior written approval of a majority of the Directors (including a majority of the Independent Directors).  The Advisor may assign any rights to receive fees or other payments under this Agreement to any Person without obtaining the approval of the Directors. This Agreement shall not be assigned by the Company or the Operating Partnership without the consent of the Advisor, except in the case of an assignment by the Company or the Operating Partnership to a corporation, limited partnership or other organization which is a successor to all of the assets, rights and obligations of the Company or the Operating Partnership, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company and the Operating Partnership are bound by this Agreement.

 

22.          INDEMNIFICATION BY THE COMPANY AND THE OPERATING PARTNERSHIP.  The Company and the Operating Partnership shall indemnify and hold harmless the Advisor and its Affiliates, including their respective officers, directors, equity holders, partners and employees (the “Indemnitees,” and each an “Indemnitee”), from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys’ fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance, and to the extent that such indemnification would not be inconsistent with the laws of the State of Maryland, the Articles of Incorporation or the provisions of Section II.G of the NASAA REIT Guidelines.  Any indemnification of the Advisor may be made only out of the net assets of the Company and not from Stockholders.  Notwithstanding the foregoing, the Company and the Operating Partnership shall not provide for indemnification of an Indemnitee for any loss or liability suffered by such Indemnitee, nor shall they provide that an Indemnitee be held harmless for any loss or liability suffered by the Company and the Operating Partnership, unless all of the following conditions are met:

 

(a)           the Indemnitee has determined, in good faith, that the course of conduct that caused the loss or liability was in the best interest of the Company and the Operating Partnership;

 

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

 

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

 

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

 

Notwithstanding the foregoing, an Indemnitee shall not be indemnified by the Company and the Operating Partnership for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws by such Indemnitee unless one or more of the following conditions are met:

 

(a)           there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the Indemnitee;

 

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

 

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

 

23.          ADVANCEMENT OF LEGAL EXPENSES.  The Company or the Operating Partnership shall pay or reimburse reasonable legal expenses and other costs incurred by an Indemnitee as a result of any legal action for which indemnification is being sought in advance of the final disposition of a proceeding only if all of the following conditions are satisfied:

 

(a)           the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company or the Operating Partnership;

 

(b)           the legal action is initiated by a third party who is not a Stockholder or the legal action is initiated by a Stockholder acting in such Stockholder’s capacity as such and a court of competent jurisdiction specifically approves such advancement; and

 

(c)           the Indemnitee undertakes to repay the advanced funds to the Company or the Operating Partnership, together with the applicable legal rate of interest thereon, if it is ultimately determined that such Indemnitee is found not to be entitled to indemnification.

 

24.          INDEMNIFICATION BY ADVISOR.  The Advisor shall indemnify and hold harmless the Company and the Operating Partnership from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor’s bad faith, fraud, willful misfeasance, intentional misconduct, gross negligence or reckless disregard of its duties; provided, however, that the Advisor shall not be held responsible for any action of the Board in following or declining to follow any advice or recommendation given by the Advisor.

 

25.          PUBLICITY.  The Advisor shall not, and shall cause its Affiliates and their officers, managers, employees and members to not, make any public statements or disclosure regarding this Agreement, the duties contemplated hereunder or the business of the Company and the Operating Partnership without obtaining the prior written consent of the officers of the Company as to the form and content of such disclosure, except to the extent that such disclosure is required by law, in which case the Advisor will give the Company sufficient prior written notice thereof to seek judicial intervention.  Except as authorized in advance by the Board, only the officers of the Company shall be permitted to make public statements or disclosure on behalf of the Company.

 

26.          NON-SOLICITATION.  During the period commencing on the Effective Date and ending one year following the Termination Date, the Company shall not, without the Advisor’s prior written consent, directly or indirectly (a) solicit or encourage any person to leave the employment or other service of the Advisor or its Affiliates; or (b) hire on behalf of the Company or any other person or entity, any person who has left its employment within the one year period following the termination of that person’s employment the Advisor or its Affiliates.  During the period commencing on the date hereof through and ending one year following the Termination Date, the Company will not, whether for its own account or for the account of any other Person, intentionally interfere with the relationship of the Advisor or its Affiliates with, or endeavor to entice away from the Advisor or its Affiliates, any person who during the term of the Agreement is, or during the preceding one-year period, was a tenant, co-investor, co-developer,  joint venturer or other customer of the Advisor or its Affiliates.

 

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

 

	
To   the Directors and to the Company:
    	
 
    	
Steadfast Apartment REIT, Inc.

18100   Von Karman Avenue, Suite 500

Irvine,   California 92612

Telephone:   (949) 852-0700

Attention:   Chief Executive Officer

 
    
	
To   the Operating Partnership:
    	
 
    	
Steadfast Apartment REIT Operating Partnership,   L.P.

c/o   Steadfast Apartment REIT, Inc.

18100   Von Karman Avenue, Suite 500

Irvine,   California 92612

Telephone:   (949) 852-0700

Attention:   Treasurer

 
    
	
To   the Advisor:
    	
 
    	
Steadfast   Apartment Advisor, LLC

18100   Von Karman Avenue, Suite 500

Irvine,   California 92612

Telephone:   (949) 852-0700

Attention:   Secretary
    

 

If delivered by hand or by courier, the date on which the notice, report or other communication is delivered shall be the date on which such delivery is made and if delivered by overnight carrier, the date on which the notice, report or other communication is received shall be the date on which such delivery is made.  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 27.

 

28.          MODIFICATION.  This Agreement shall not be changed, 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.

 

29.          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.

 

30.          CONSTRUCTION. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware.

 

31.          ENTIRE AGREEMENT.  This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof.  The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof.  This Agreement may not be modified or amended other than by an agreement in writing.

 

32.          INDULGENCES, NOT WAIVERS.  Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence.  No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

 

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33.          GENDER.  Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.

 

34.          TITLES NOT TO AFFECT INTERPRETATION.  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.

 

35.          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.

 

[Signatures on following page.]

 

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

 

	
 
    	
STEADFAST   APARTMENT REIT, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
Rodney   F. Emery
    
	
 
    	
Title:
    	
Chief   Executive Officer
    
	
 
    	
 
    
	
 
    	
STEADFAST   APARTMENT REIT OPERATING PARTNERSHIP, L.P.
    
	
 
    	
 
    
	
 
    	
By:
    	
Steadfast   Apartment REIT, Inc.,
    
	
 
    	
 
    	
its   General Partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
Rodney   F. Emery
    
	
 
    	
 
    	
Title:
    	
Chief   Executive Officer
    
	
 
    	
 
    
	
 
    	
STEADFAST   APARTMENT ADVISOR, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
Ella   Shaw Neyland
    
	
 
    	
Title:
    	
President
    
	
 
    	
 
    

 

Signature Page to Advisory Agreement

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