Cole Credit Property Trust III, Inc. and American Realty Capital Properties, Inc.

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1 * The materials herein are provided for general informational and educational purposes only and do not constitute legal advice. As this is a very fluid matter, these materials are intended, but not promised or guaranteed to be current, complete, or up-to-date. They are not offered as and do not constitute legal advice or legal opinions. You should not act or rely on any information contained in this website without first seeking the advice of an attorney. Cole Credit Property Trust III, Inc. and American Realty Capital Properties, Inc. Summary description as noted in a Cole press release: Upon closing, the REIT will make upfront payments of $20 million in cash, subject to adjustment, and 10,711,225 shares of REIT stock, plus the following contingent amounts: (i) (ii) (iii) 2,142,245 shares of REIT stock after a listing on the NYSE (payable to Mr. Cole); and additional shares of REIT stock potentially payable in 2017 as an earn-out (amount TBD) contingent upon the financial success based on two criteria, a. generating EBITDA above a minimum threshold and b. REIT stock performance relative to its peer group. Post-listing incentive fee payable in REIT shares: amount TBD The upfront stock consideration and the stock consideration upon listing are subject to a three-year lockup with approximately one-third of the shares paid at closing released each year. The potential earn-out payable in 2017 is subject to a lock-up until December 31, Additional shares of REIT stock may be payable based on the REIT s market value over the 30- day period beginning six months after listing, pursuant to the current advisory agreement, but Cole Holdings has agreed, as part of this transaction, to a 25% reduction from the amount payable under the current advisory agreement, if any. **Note that a Company Disclosure Letter delivered by Cole Holdings to the REIT prior to the execution of the merger agreement apparently contains quite a bit more detail regarding the potential bonuses and to whom they may be given. This Letter is not on EDGAR, so there may be extra payments that could be earned down the road. Post-Internalization Employment Income 1. Chris Cole: a. $750K/yr; b. annual bonus targeted at 150% of salary, up to 300% of salary based on performance metrics determined by the board; c. equity award at closing of $7.5 million of REIT stock; d. annual equity awards TBD 2. Marc Nemer: a. $625K/yr;

2 b. annual bonus targeted at 150% of salary, up to 300% of salary based on performance metrics determined by the board; c. equity award at closing of $6.0 million of REIT stock; d. annual equity awards TBD Further (summary) detail regarding the various additional payments 1. Listing Consideration. (a) As part consideration payable to Mr. Cole in exchange for shares of Cole Holdings Corp (wholly owned by Mr. Cole), and subject to other certain terms, upon listing, the REIT shall issue to Mr. Cole (i) 2,142,245 shares of REIT stock, less (ii) any such shares payable as a separate bonus [as may be found in the unavailable Company Disclosure Letter ]. At the same time, the REIT shall also pay Mr. Cole all dividends (@ $0.70/sh) that would have been paid on such shares had they been issued at Closing. If a listing doesn t occur within three years from Closing, the Listing Consideration amount will decrease incrementally on a daily basis. If the listing has not occurred within four years of Closing, the Listing Consideration shall be zero. 2. The Incentive Consideration shall be a number of REIT shares equal to the product of (a) the number of REIT shares outstanding as of the day after six months following listing, (b) 11.25%, and (c) the amount by which; a. (i) the volume-weighted average of the closing sale prices of REIT shares over the 30-day period beginning six months after listing, exceeds b. (ii) the REIT share price that would provide shareholders an 8.0% return; divided by (d) the volume-weighted average of the closing sale prices of REIT shares over the 30-day period beginning six months after listing. 3. Contingent Consideration. Following the Closing, and as additional consideration for shares of Cole Holdings Corp (wholly owned by Mr. Cole), the REIT shall pay an earn-out payment or special earn-out payment, if any, in REIT shares, equal to the quotient of (A): (x) the Earn-Out Multiple (5.5x) multiplied by (y) the lesser of: (i) the average of the Adjusted Contribution Margins [for any twelve (12)-month period; (a) EBITDA for such period; less (b) the greater of (i) $3 million and (ii) actual capex incurred; less (c) twenty-two million dollars ($22,000,000)] and (ii) $60 million less the sum of the Incentive Consideration paid to Chris Cole in cash and any cash bonus amounts paid to other executives; divided by 5.5x; less (z) any bonus amounts payable in respect of such amount to certain executives, divided by and (B) the Average Closing Price [if listed, the average share price of the REIT for the 60 days prior to December 31, 2016; if not listed, TBD by the board and Chris Cole]. Notwithstanding the foregoing, if:

3 (i) the REIT s annualized total return for 1/31/15-12/31/16 is less than the average for each member of the Peer Group [Realty Income Corp., National Retail Properties, Inc., EPR Properties, Lexington Realty Trust, W.P. Carey Inc. REIT and Spirit Realty Capital], then for each basis point by which the REIT s return was below that of the Peer Group, the Contingent Consideration shall be reduced by 0.125%, but shall not be reduced by more than twenty-five percent (25%) in total; and (ii) the REIT is not listed within three years, then the Contingent Consideration (whenever paid) shall be reduced by twelve and one-half percent (12.5%). Finally, note that if the Contingent Consideration shall have been paid before the time at which the Incentive Consideration is paid, the Incentive Consideration shall be reduced by the same amount (if any) by which it would have reduced the Contingent Consideration actually paid had the Incentive Consideration been paid before the payment date of the Contingent Consideration, provided that the Incentive Consideration shall not be reduced to a negative amount. According to ARCP s March 27, 2013 filing: The internalization transaction would internalize CCPT III s external advisor and affiliated broker-dealer, Cole Holdings, at to CCPT III s stockholders, as estimated by ARC, to be approximately $165 million in a combination of cash and stock (the Internalization Transaction ). ARC s Proposal, calling for not less than $13.59 per share, implies a minimum equity value for CCPT III of approximately $6.7 billion (assuming million shares of CCPT III common stock outstanding, consisting of million shares of CCPT III common stock outstanding as of the date of the merger agreement, plus 10.7 million shares of CCPT III common stock to be issued to Cole Holdings in connection with the Internalization, each purchased at $13.59 per share). The cash component of ARC s Proposal is to be fully funded by cash on hand and borrowing capacity under ARCP s existing line of credit. ARC s Proposal represents an equivalent annual dividend of 74.4 cents per share to CCPT III stockholders, a 15% increase over their current dividend of $0.65, and provides CCPT III stockholders an option to elect cash or publicly traded ARCP common stock in a tax-free stock for stock exchange (subject to proration). According to ARCP s filing, the fees associated with the Internalization are illustrated in the following table: Description Amount Note Internalization Stock Payment $ 145,565,548 (1) Internalization Cash Payment $ 20,000,000 Internalization Fees 165,565,548 (2) Contingent Listing Consideration N/A (3) Earn Out Based on Performance TBD (4) Subordinated Incentive Fee $ 226,723,857 (5) Less: Subordinated Incentive Fee Discount $ (56,680,964) (6) Total Fees Paid to Cole Holdings $ 335,608,441 (1) 10,711,225 shares at $13.59/share. (2) Equivalent to 34 cents per share. (3) 2,142,245 shares to be issued upon listing will be cancelled.

4 (4) Earn out is payable on a 2-year trailing average multiple of EBITDA in excess of $25 million. Cole Holdings management expects approximately $29 million of 2013E pro forma EBITDA contribution from Cole Holdings alone. (5) ($ $10.45) x 481,367,000 shares outstanding x 15% where $10.45 is the hurdle price and 15% is the promote interest. (6) 25% reduction in subordinated incentive listing fee. Summary of ARCP s Proposal: CCPT III stockholders will receive at least $13.59 per share of value: ARCP is prepared to acquire 100% of the outstanding common stock of CCPT III, at the election of CCPT III s stockholder, for either: (i) 0.80 of a share of ARCP common stock for each share of CCPT III common stock, with a guarantee that the value of the share consideration will not be less than $13.59 per share (with the added benefit of a significant upside), or (ii) $12.50 per share in cash. ARCP is proposing that $1.2 billion (or approximately 20% of the value of the outstanding shares of CCPT III common stock) will be paid with ARCP s currently available cash on hand or from its existing credit facility. CCPT III stockholders will receive an equivalent annual dividend of 74.4 cents per share, a 15% increase over their current dividend: ARCP plans to declare its 7 th consecutive quarterly dividend increase to an annual dividend of 93 cents per share, effective upon closing of the transaction. As a result, CCPT III stockholders who elect stock consideration will receive an equivalent dividend of 74.4 cents per share (93 cents x 0.80 exchange ratio), a 15% increase (9.4 cents per share increase) over CCPT III s current 65 cent per share dividend. CCPT III stockholders will not be locked up : All CCPT III shares converted into ARCP shares will be immediately tradable on NASDAQ; stockholders will not be locked up. Unlike the Internalization and the proposed listing of CCPT III, significant market support and liquidity is anticipated in ARCP common stock from numerous index inclusions at and subsequent to closing. CCPT III stockholders who take ARCP stock will benefit from a tax-free exchange safe harbor: The stock-for-stock option is designed to provide CCPT III stockholders with a tax-free exchange for those who elect to receive stock consideration. ARCP expects the proposed transaction will be immediately accretive to AFFO per share by 10%: The ARCP Proposal results in an increase to combined ARCP and CCPT III pro forma 2013 and 2014 AFFO, resulting in part from a significant reduction in operating costs, namely due to an elimination of CCPT III asset management fees and a pronounced reduction of G&A expenses. From a stockholder perspective: From CCPT III Charter:

5 Section 12.2 Voting Rights of Stockholders. Subject to the provisions of any class or series of Shares then outstanding and the mandatory provisions of any applicable laws or regulations, the Stockholders shall be entitled to vote only on the following matters: (a) election or removal of Directors, without the necessity for concurrence by the Board, as provided in Sections 12.1, 8.4 and 8.11 hereof; (b) amendment of the Charter, without the necessity for concurrence by the Board, as provided in Article XIV hereof; (c) dissolution of the Corporation, without the necessity for concurrence by the Board; (d) merger or consolidation of the Corporation, or the sale or other disposition of all or substantially all of the Corporation s assets; and (e) such other matters with respect to which the Board of Directors has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the Stockholders for approval or ratification. Except with respect to the foregoing matters, no action taken by the Stockholders at any meeting shall in any way bind the Board. Without the approval of a majority of the Shares entitled to vote on the matter, the Board of Directors may not (i) amend the Charter to adversely affect the rights, preferences and privileges of the holders of Common Shares; (ii) amend the Charter provisions relating to director qualifications, fiduciary duties, liability and indemnification, conflicts of interest, investment policies or investment restrictions; (iii) liquidate or dissolve the Corporation other than before the initial investment in property; (iv) sell all or substantially all of the Corporation s assets other than in the ordinary course of the Corporation s business or as otherwise permitted by law; or (v) cause the merger of the Corporation, except as permitted by law. CCPT III s shareholder s could have a number of options concerning the ARCP proposal and the definitive merger agreement to internalize. The options could vary depending on the timing of the action. CCPT III s board approved the decision to internalize, but the transaction will not occur until at least June. Shareholder s could seek a temporary restraining order and a preliminary injunction the completion of the merger; however, this would only serve as a temporary fix. Shareholder s best chance could be to bring a breach of fiduciary duty claim against the directors. Ordinarily, a shareholder does not have standing to sue to redress an injury to the corporation resulting from directorial mismanagement: courts generally will not interfere with the internal management of a corporation. Under the business judgment rule, there is a presumption that directors of a corporation acted in good faith and in the best interests of the corporation. If the majority of the board properly exercises its business judgment, the directors are not ordinarily liable. In the case at hand, it is fairly obvious that the directors were not acting in the best interests of the corporation. Instead they were acting in their self interest. Shareholder s can either bring a derivative or direct action. In a derivative action, the business judgment rule protects a disinterested director from liability to the corporation and its stockholders by insulating the business decisions made by the director from judicial review, absent a showing of fraud, self-dealing, unconscionable conduct, or bad faith.

6 The Maryland statutory business judgment rule places the burden on a derivative plaintiff to prove that a decision by a board of directors or by a committee of the board was not made independently and in good faith, was not investigated reasonably, or was not based upon reasonable conclusions. In order to sue derivatively on behalf of the corporation, a plaintiff shareholder must overcome a number of procedural hurdles and demonstrate that he or she, rather than the corporation itself, should control the litigation; specifically, before instituting suit, the derivative plaintiff either must make a demand on the corporation's board of directors to pursue the claim against the offending parties or demonstrate to the court that such demand would be futile due to the conflicting interests of the members of the board. If a plaintiff shareholder demonstrates that he or she has suffered the alleged injury directly, he or she need not make demand on the corporate board of directors or prove futility of demand, and the business judgment rule does not apply. In contrast to a derivative action, a shareholder may bring a direct action, either individually or as a representative of a class, against alleged corporate wrongdoers when the shareholder suffers the harm directly or a duty is owed directly to the shareholder, though such harm also may be a violation of a duty owing to the corporation. Another means of resolve could be through a securities fraud claim under the Exchange Act. To state a securities fraud claim, a plaintiff must allege: (1) a misrepresentation or omission of a material fact; (2) reliance; (3) scienter; and (4) resulting damages. However, this type of claim is usually brought regarding a materially false and misleading Proxy in violation of Sections 14(a) and 20(a) of the Securities Exchange Act, which would not be the case since shareholders were deprived of the opportunity to vote on the internalization transaction. **Regarding CCPT III, on March 20, 2013, a shareholder class action and derivative action (Strub v. Cole Holdings Corporation, et al.) was filed against CCPT III s board of directors, including CCPT III s founder Christopher Cole, Cole REIT Advisors III, Cole Holdings Corporation and other affiliated Cole Holdings entities. Plaintiff alleges that the Internalization represents a sweetheart deal designed and implemented by the defendants, each of which owe fiduciary duties to CCPT III and its shareholders, to give the defendants an unjustified $150 million payday and exit strategy prior to the contemplated listing of CCPT III on a national exchange. Plaintiff further alleges that the Internalization was quickly pushed through without a shareholder vote and in contravention of the defendants contractual and fiduciary duties to explore whether there was a less costly, more desirable alternative for CCPT III and its shareholders to become self-advised. In fact, the defendants failed to disclose in the Merger Agreement that CCPT III had been approached by ARCP concerning ARCP s interest in acquiring CCPT III.

7 Also on March 20, 2013, a Maryland securities litigation firm, Brower Piven, commenced an investigation into possible breaches of fiduciary duty to current shareholders of CCPT III and other violations of state law by the board of directors of CCPT III relating to the proposed acquisition of the CCPT III by ARCP. The firm is also investigating whether CCPT III s board of directors breached its fiduciary duties in connection with CCPT III's proposed acquisition of its asset manager and sponsor company, Cole Holdings Corporation.