Commitments and Contingencies

Litigation

The Company is involved in various routine legal proceedings and claims incidental to the ordinary course of its business. There are no material legal proceedings pending against the Company, except as follows:

Government Investigations and Litigation Relating to the Audit Committee Investigation

On October 29, 2014, the Company filed a Current Report on Form 8-K (the “October 29 8-K”) reporting the Audit Committee’s conclusion, based on the preliminary findings of its investigation, that certain previously issued consolidated financial statements of the Company, including those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014, and related financial information should no longer be relied upon. Prior to that filing, the Audit Committee previewed for the SEC the information contained in the filing. Subsequent to that filing, the SEC provided notice that it had commenced a formal investigation and issued subpoenas calling for the production of various documents. In addition, the United States Attorney’s Office for the Southern District of New York contacted counsel for the Audit Committee and counsel for the Company with respect to this matter, and the Secretary of the Commonwealth of Massachusetts issued a subpoena calling for the production of various documents. The Audit Committee and the Company are cooperating with these regulators in their investigations.

As discussed below, the Company and certain of its former officers and current and former directors have been named as defendants in a number of lawsuits filed following the October 29 8-K, including class actions, derivative actions, and individual actions under the federal securities laws and state common and corporate laws in both federal and state courts in New York, Maryland and Arizona.

Between October 30, 2014 and January 20, 2015, the Company and certain of its former officers and current and former directors, among other individuals and entities, were named as defendants in ten putative securities class action complaints filed in the United States District Court for the Southern District of New York (the “SDNY Actions”). The Court subsequently consolidated the SDNY Actions under the caption In re American Realty Capital Properties, Inc. Litigation, No. 15-MC-00040 (AKH) (the “SDNY Consolidated Securities Class Action”). Following motions to dismiss filed by the defendants, which were granted in part and denied in part, the lead plaintiff filed an amended class action complaint on December 11, 2015, which asserted claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Certain defendants, including the Company filed motions to dismiss the second amended class action complaint (or portions thereof) on February 12, 2016.

In addition, on November 25, 2014, the Company and certain of its former officers and current and former directors were named as defendants in a putative securities class action complaint filed in the Circuit Court for Baltimore County, Maryland, captioned Wunsch v. American Realty Capital Properties, Inc., et al., No. 03-C-14-012816 (the “Wunsch Action”). On December 23, 2014, the Company removed the action to the United States District Court for the District of Maryland and on April 15, 2015, the Maryland court transferred the Wunsch Action to the United States District Court for the Southern District of New York. On December 15, 2015, the Wunsch Action was consolidated with the SDNY Consolidated Securities Class Action.

In January 2015, the Company and certain of its former directors and officers were named as defendants in an individual securities fraud action filed in the United States District Court for the Southern District of New York, captioned Jet Capital Master Fund, L.P. v. American Realty Capital Properties, Inc., et al., No. 15-cv-307 (AKH) (the “Jet Capital Action”). The Jet Capital Action seeks money damages and asserts claims for alleged violations of Sections 10(b), 18 and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, as well as common law fraud under New York law in connection with the purchase of the Company’s securities. On April 17, 2015, the plaintiff filed an amended complaint. On October 27, 2015, the court denied defendants’ motions to dismiss the complaint and all defendants filed answers to the complaint by December 18, 2015.

The Company, certain of its former officers and current and former directors, and the OP (in addition to several other individuals and entities) have also been named as defendants in two additional individual securities fraud actions filed in the United States District Court for the Southern District of New York, captioned Twin Securities, Inc. v. American Realty Capital Properties, Inc., et al., No. 15-cv-1291 (the “Twin Securities Action”) and HG Vora Special Opportunities Master Fund, Ltd v. American Realty Capital Properties, Inc., et al., No. 15-cv-4107 (the “HG Vora Action”). The Twin Securities Action and the HG Vora Action seek money damages and assert claims for alleged violations of Sections 10(b), 14(a), 18, and 20(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9 promulgated thereunder, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as well as common law fraud under New York law in connection with the purchase of the Company’s securities. The Company and defendants are not yet required to respond to the complaints in either of these actions.

On October 27, 2015, the Company and certain of its former officers, the OP, and other entities were named as defendants in an individual securities fraud action filed in the United States District Court for the District of Arizona, captioned Vanguard Specialized Funds, et al. v. VEREIT, Inc. et al., No. 15-cv-02157 (ESW) (the “Vanguard Action”). The Vanguard Action seeks money damages and asserts claims for alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9 promulgated thereunder, arising out of allegedly false and misleading statements in connection with the purchase or sale of the Company’s securities. The Vanguard Action also asserts claims under Arizona law pursuant to the Arizona Consumer Fraud Act and seeks punitive damages thereunder. On January 21, 2016, the Company filed a motion to transfer the Vanguard Action to the United States District Court for the Southern District of New York and a motion to.dismiss the complaint.

On October 27 and October 28, 2015, the Company and certain of its former officers, the OP, and other entities were named as defendants in four individual securities fraud actions filed in the United States District Court for the Southern District of New York: BlackRock ACS US Equity Tracker Fund, et al. v. American Realty Capital Properties, Inc. et al., No. 15-cv-08464 (the “BlackRock Action”); PIMCO Funds: PIMCO Diversified Income Fund, et al. v. American Realty Capital Properties, Inc. et al., No. 15-cv-08466 (the “PIMCO Action”); Clearline Capital Partners LP, et al. v. American Realty Capital Properties, Inc. et al., No. 15-cv-08467 (the “Clearline Action”); and Pentwater Equity Opportunities Master Fund Ltd., et al. v. American Realty Capital Properties, Inc. et al., No. 15-cv-08510 (the “Pentwater Action”). All four actions seek money damages arising out of allegedly false and misleading statements in connection with the purchase or sale of the Company’s securities. The BlackRock Action and the PIMCO Action assert claims for alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The BlackRock Action also asserts claims under Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder. The Clearline Action and the Pentwater Action assert claims under Sections 10(b), 18(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Clearline Action and the Pentwater Action also assert a claim for common law fraud under New York law and seek punitive damages thereunder. The Company is not yet required to respond to the complaints in these actions.

On October 28, 2015, the Company and certain of its former officers and directors (among other individuals and entities) were named as defendants in a putative securities class action complaint filed in the United States District Court for the Southern District of New York: IRA FBO John Esposito v. American Realty Capital Properties, Inc. et al., No. 15-cv-08508 (the “Esposito Action”). The Esposito Action seeks money damages and asserts claims for alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder, arising out of allegedly false and misleading statements in connection with the purchase or sale of the Company’s securities. The Company is not yet required to respond to the complaint in the Esposito Action.

On July 31, 2015, the Company and certain of its former officers and current and former directors were named as defendants in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Witchko v. Schorsch, et al., No. 15-cv-06043 (AKH) (the “Witchko Action”). The Witchko Action asserts claims under Section 14 of the Exchange Act arising out of allegedly false and misleading statements made in the Company’s proxy statements and the incorporation by reference of allegedly false and misleading financial statements. The Witchko Action also seeks money damages and other relief on behalf of the Company, for, among other things, alleged breach of fiduciary duty, abuse of control and unjust enrichment. On October 15, 2015, the Company and other defendants filed motions to dismiss the Witchko Action due to plaintiff’s failure to plead facts, as required under Maryland law, demonstrating that the Board’s decision to refuse plaintiff’s pre-suit demand was wrongful and not a protected business judgment.

On October 30, 2015, the Company and certain of its former officers and directors were named as defendants in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Serafin, et al. v. Schorsch, et al., No. 15-cv-08563 (the “Serafin Action”). The Serafin Action seeks money damages and other relief on behalf of the Company for, among other things, alleged breach of fiduciary duty and contribution and indemnification. The court has consolidated the Witchko Action and the Serafin Action (together “the SDNY Derivative Action”) and the plaintiffs have designated the complaint filed in the Witchko Action as the complaint in the SDNY Derivative Action. On February 12, 2016, the Company and other defendants filed a motion to dismiss the SDNY Derivative Action due to plaintiffs’ failure to plead facts, as required under Maryland law, demonstrating that the Board’s decision to refuse plaintiff’s pre-suit demand was wrongful and not a protected business judgment. Other defendants also filed motions to dismiss for failure to state a claim.

On December 3, 2015, the Company and certain of its former officers and directors were named as defendants in a shareholder derivate action filed in the Circuit Court for Baltimore City in Maryland, captioned Frampton v. Schorsch, et al., No. 24-C-15-006269 (the “Frampton Action”). The Frampton Action seeks money damages and other relief on behalf of the Company for, among other things, alleged breaches of fiduciary duty and contribution and indemnification. The Company is required to respond to the complaint by March 7, 2016.

The Company has not reserved amounts for any of the litigation or investigation matters referenced above either because we have not concluded that a loss is probable in the matter or because we believe that any probable loss or range of loss is not reasonably estimable at this time.

ARCT III Litigation Matters

After the announcement of the merger agreement with American Realty Capital Trust III, Inc. (“ARCT III”) in December 2012 (the “ARCT III Merger Agreement”), a putative class action lawsuit was filed in January 2013 against the Company, the OP, ARCT III, ARCT III’s operating partnership, members of the board of directors of ARCT III and certain subsidiaries of the Company in Supreme Court in the State of New York, captioned Qual v. American Realty Capital Properties, et al., No. 650329/2013. The plaintiff alleged, among other things, that the ARCT III board breached its fiduciary duties in connection with the transactions contemplated under the ARCT III Merger Agreement. In February 2013, the parties agreed to a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of ARCT III stockholders. The proposed settlement terms required certain additional disclosures related to the merger, which were included in a Current Report on Form 8-K filed by ARCT III with the SEC on February 21, 2013. On January 28, 2016, plaintiffs voluntarily dismissed their lawsuit without prejudice.

CapLease Litigation Matters

Following the announcement of the merger agreement with CapLease in May 2013, a number of lawsuits were filed by CapLease stockholders, the following of which remain pending:

On June 25, 2013, a putative class action and derivative lawsuit was filed in the Circuit Court for Baltimore City against the Company, the OP, CapLease, and members of the CapLease board of directors, among others, captioned Tarver v. CapLease, Inc., et al., No. 24-C-13-004176 (the “Tarver Action”). The complaint alleged, among other things, that the merger agreement was the product of breaches of fiduciary duty by the CapLease directors because the transaction purportedly did not provide for full and fair value for the CapLease shareholders and was not the result of a competitive bidding process, the merger agreement allegedly contained coercive deal protection measures and the merger was purportedly approved as a result of improper self-dealing by certain defendants who would receive certain alleged employment compensation benefits and continued employment pursuant to the merger agreement. The complaint also alleged that CapLease, the Company, the OP and others aided and abetted the CapLease directors’ alleged breaches of fiduciary duty.

In August 2013, counsel in the Tarver Action filed a motion for a stay in the Baltimore Court, informing the court that the plaintiff had agreed to join and participate in the prosecution of other actions concerning the CapLease transaction then pending in a New York court (which were subsequently dismissed). The stay was granted by the Baltimore Court and the parties have engaged in no subsequent activity in the Tarver Action.

In October 2013, a putative class action lawsuit was filed in the Circuit Court for Baltimore City against the Company, the OP, CapLease, and members of the CapLease board of directors, among others, captioned Poling v. CapLease, Inc., et al., No. 24-C-13-006178 (the “Poling Action”). The complaint alleged that the merger agreement breached the terms of the CapLease 8.375% Series B Cumulative Redeemable Preferred Stock (“Series B”) and the terms of the 7.25% Series C Cumulative Redeemable Preferred Stock (“Series C”) and was in violation of the Series B Articles Supplementary and the Series C Articles Supplementary. The complaint alleged claims for breach of contract and breach of fiduciary duty against the CapLease entities and the CapLease board of directors, and that the Company, the OP and Safari Acquisition, LLC aided and abetted CapLease and the CapLease directors’ alleged breach of contract and breach of fiduciary duty.

In December 2013, all Defendants filed a motion to dismiss the Poling Action, which was granted by the court in May 2015. Plaintiff filed a notice of appeal on June 4, 2015. The appeal is pending.

Cole Litigation Matters

Two actions filed in March and April 2013 in the United States District Court for the District of Arizona, assert shareholder class action claims under the Securities Act of 1933, along with claims for breach of fiduciary duty, abuse of control, corporate waste, and unjust enrichment, among others, relating to the merger between a wholly owned subsidiary of Cole and Cole Holdings Corporation, pursuant to which Cole became a self-managed REIT; Schindler v. Cole Holdings Corp., et al., 13-cv-00712; and Carter v. Cole Holdings Corp., et al., 13-cv-00629. Defendants filed a motion to dismiss both complaints in January 2014. Both of those lawsuits have been stayed by the Court pursuant to a joint request made by all parties pending final approval of the Consolidated Maryland Cole Merger Action described below.

To date, a number of lawsuits have been filed in connection with the Cole Merger, the following of which remain pending. Between October and November 2013, eight putative stockholder class action or derivative lawsuits were filed in the Circuit Court for Baltimore City, Maryland, which were consolidated in December 2013, under the caption Polage v. Cole Real Estate Investments, Inc., et al., 24-c-13-006665 (the “Consolidated Maryland Cole Merger Action”).

These lawsuits named the Company, Cole and Cole’s board of directors as defendants, and certain of the actions also named CREInvestments, LLC, a Maryland limited liability company and a wholly-owned subsidiary of Cole, as a defendant. Each complaint generally alleged, among other things, that the individual defendants breached fiduciary duties owed to stockholders of Cole in connection with the Cole Merger, and that certain entity defendants aided and abetted those breaches. The breach of fiduciary duty claims asserted included claims that the Cole Merger did not provide for full and fair value for the Cole shareholders and was the product of an “inadequate sale process,” that the Cole Merger Agreement contained coercive deal protection measures and that the Cole Merger Agreement and the Cole Merger were approved as a result of, or in a manner which facilitated, improper self-dealing by certain defendants.

In January 2014, the parties to the Consolidated Maryland Cole Merger Action entered into a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of Cole stockholders. The proposed settlement terms required Cole to make certain additional disclosures related to the Cole Merger and contemplated that the parties would enter into a stipulation of settlement, subject to customary conditions, including confirmatory discovery and court approval following notice to Cole’s stockholders. In August 2014, the parties in the Consolidated Maryland Cole Merger Action executed a Stipulation and Release and Agreement of Compromise and Settlement (the “Stipulation”) and the Baltimore Circuit Court entered an Order on Preliminary Approval of Derivative and Class Action Settlement and Class Action Certification and scheduled a final settlement hearing.

In December 2014, the parties in the Consolidated Maryland Cole Merger Action executed an Amended Stipulation and Release and Agreement of Compromise and Settlement (the “Amended Stipulation”) modifying the Stipulation. In January 2015, the Baltimore Circuit Court issued an order approving the class settlement pursuant to the terms of the Amended Stipulation. Under the terms of the approved settlement, defendants paid a settlement amount of $14.0 million, half of which was to be used for class counsel’s attorney’s fees. One objector pursued an appeal of the settlement order. That appeal was denied on February 1, 2016.

In December 2013, Realistic Partners filed a putative class action lawsuit against the Company and the then-members of its board of directors in the Supreme Court for the State of New York, captioned Realistic Partners v. American Realty Capital Partners, et al., No. 654468/2013. Cole was later added as a defendant. The plaintiff alleged, among other things, that the board of the Company breached its fiduciary duties in connection with the transactions contemplated under the Cole Merger Agreement and that Cole aided and abetted those breaches. In January 2014, the parties entered into a memorandum of understanding regarding settlement of all claims asserted on behalf of the alleged class of the Company’s stockholders. The proposed settlement terms required the Company to make certain additional disclosures related to the Cole Merger, which were included in a Current Report on Form 8-K filed by the Company with the SEC on January 17, 2014. The memorandum of understanding also contemplated that the parties would enter into a stipulation of settlement, which would be subject to customary conditions, including confirmatory discovery and court approval following notice to the Company’s stockholders, and provided that the defendants would not object to a payment of up to $625,000 for attorneys’ fees. If the parties enter into a stipulation of settlement, which has not occurred, a hearing will be scheduled at which the court will consider the fairness, reasonableness and adequacy of the settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement, that the court will approve any proposed settlement, or that any eventual settlement will be under the same terms as those contemplated by the memorandum of understanding.

Contractual Lease Obligations

The following table reflects the minimum base rent payments due from the Company over the next five years and thereafter for certain ground lease obligations, which are substantially reimbursable by our tenants, and office lease obligations (in thousands):



	Future Minimum Base Rent Payments
	Ground Leases		Office Leases
2016	$	18,518	$	5,112
2017	17,947		4,585
2018	15,785		4,703
2019	15,383		4,769
2020	14,694		4,805
Thereafter	236,523		14,089
Total	$	318,850	$	38,063

Purchase Commitments

Cole Capital enters into purchase and sale agreements and deposits funds into escrow towards the purchase of real estate assets, most of which are expected to be assigned to one of the Managed REITs at or prior to the closing of the respective acquisition. As of December 31, 2015, Cole Capital was a party to seven purchase and sale agreements with unaffiliated third-party sellers to purchase a 100% interest in nine properties, subject to meeting certain criteria, for an aggregate purchase price of $59.2 million, exclusive of closing costs. As of December 31, 2015, Cole Capital had $1.3 million of property escrow deposits held by escrow agents in connection with these future property acquisitions, which may be forfeited if the transactions are not completed under certain circumstances. Cole Capital will be reimbursed by the assigned Managed REIT for amounts escrowed when the property is assigned to the respective Managed REIT.

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect on the results of operations.