FORM OF ADVISORY AGREEMENT
EXHIBIT
10.2
FORM
OF ADVISORY AGREEMENT
This
ADVISORY AGREEMENT (this “Agreement”) is
entered into on this the ____ day of _____________, 2005, by and between
BEHRINGER HARVARD OPPORTUNITY REIT I, INC., a Maryland corporation (the
“Company”), and
BEHRINGER HARVARD OPPORTUNITY ADVISORS I LP, a Texas limited partnership (the
“Advisor”).
W
I T N E S S E T H
WHEREAS, the
Company will be issuing shares of its common stock, par value $.0001, to the
public, such shares to be registered with the Securities and Exchange Commission
and may subsequently issue additional securities;
WHEREAS, the
Company intends to qualify as a real estate investment trust and to invest its
funds in investments permitted by the terms of the Company’s Articles of
Incorporation and Sections 856 through 860 of the Internal Revenue Code;
WHEREAS, the
Company desires to avail itself of the 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, subject to the
supervision of the Board, on the terms and conditions hereinafter set forth.
NOW,
THEREFORE, in
consideration of the foregoing and of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE
ONE
DEFINITIONS
The
following defined terms used in this Agreement shall have the meanings specified
below:
Acquisition
Expenses. Any and
all expenses incurred by the Company, the Advisor, or any Affiliate of either in
connection with the selection, acquisition or development of any Asset, whether
or not acquired, including, without limitation, legal fees and expenses, travel
and communications expenses, costs of appraisals, nonrefundable option payments
on property not acquired, accounting fees and expenses, and title insurance
premiums.
Acquisition
Fees. Any and
all fees and commissions, exclusive of Acquisition Expenses but including the
Acquisition and Advisory Fees, paid by any Person to any other Person (including
any fees or commissions paid by or to any Affiliate of the Company or the
Advisor) in connection with making or investing in Mortgages or the purchase,
development or construction of an Asset, including, without limitation, real
estate commissions, selection fees, Development Fees, Construction Fees,
non-recurring management fees, loan fees, points or any other fees of a similar
nature. Excluded shall be Development Fees and Construction Fees paid to any
Person not affiliated with the Sponsor in connection with the actual development
and construction of any Property.
-1-
Acquisition
and Advisory Fees. The
fees payable to the Advisor pursuant to Section 3.01(b).
Advisor.
Behringer Harvard Opportunity Advisors I LP, a Texas limited partnership, any
successor advisor to the Company, or any Person to which Behringer Harvard
Opportunity Advisors I LP or any successor advisor subcontracts all or
substantially all of its functions.
Affiliate
or Affiliated. As to
any Person, (i) any Person directly or indirectly owning, controlling, or
holding, with the power to vote, 10% or more of the outstanding voting
securities of such other Person; (ii) any Person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled, or
held, with 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.
Aggregate
Assets Value. The
aggregate book value of the Assets at the time of measurement before deducting
depreciation, bad debts or other similar non-cash reserves and without reduction
for any debt secured by or relating to such assets; provided, however, that
during such periods in which the Company is obtaining regular independent
valuations of the current value of its net assets for purposes of enabling
fiduciaries of employee benefit plan stockholders to comply with applicable
Department of Labor reporting requirements, “Aggregate Assets Value” will equal
the greater of (i) the amount determined pursuant to the foregoing or (ii) the
Assets’ aggregate valuation established by the most recent such valuation report
without reduction for depreciation, bad debts or other non-cash reserves and
without reduction for any debt secured by or relating to such assets.
Appraised
Value. Value
according to an appraisal made by an Independent Appraiser.
Articles
of Incorporation. The
Articles of Incorporation of the Company filed with the Maryland State
Department of Assessments and Taxation in accordance with the Maryland General
Corporation Law, as amended from time to time.
Assets.
Properties, Mortgages and other direct or indirect investments in equity
interests in or loans secured by or otherwise relating to Real Property (other
than investments in bank accounts, money market funds or other current assets,
whether of the proceeds from an Offering or the sale of an Asset or otherwise)
owned by the Company, directly or indirectly through one or more of its
Affiliates or Joint Ventures.
Asset
Management Fee. The fee
payable to the Advisor for day-to-day professional management services in
connection with the Company and its investments in Assets pursuant to this
Agreement.
Average
Invested Assets. For a
specified period, the average of the aggregate book value of the Assets
before deduction for 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; provided, however, that during such periods in which the Company is
obtaining regular independent valuations of the current value of its net assets
for purposes of enabling fiduciaries of employee benefit plan stockholders to
comply with applicable Department of Labor reporting requirements, “Average
Invested Assets” will equal the greater of (i) the amount determined pursuant to
the foregoing or (ii) the Assets’ aggregate valuation established by the most
recent such valuation report(s) without reduction for depreciation, bad debts or
other non-cash reserves.
Board. The
Board of Directors of the Company.
-2-
Bylaws. The
bylaws of the Company, as the same are in effect from time to time.
Change
of Control. Any
event (including, without limitation, issue, transfer or other disposition of
Shares of capital stock of the Company or equity interests in the Partnership,
merger, share exchange or consolidation) after
which any “person” (as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the “beneficial
owner” (as defined in Rule 13d-j of the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the Company or the
Partnership representing greater than 50% or more of the combined voting power
of the Company’s or the Partnership’s then outstanding securities, respectively;
provided, that, a Change of Control shall not be deemed to occur as a result of
any widely distributed public offering of the Shares.
Closing
Price. On any
date, the last sale price for any class or series of the Company’s Shares,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, for such Shares, in either case
as reported in the principal consolidated transaction reporting system with
respect to Shares listed or admitted to trading on the NYSE or, if such Shares
are not listed or admitted to trading on the NYSE, as reported on the principal
consolidated transaction reporting system with respect to Shares listed on the
principal national securities exchange on which such Shares are listed or
admitted to trading or, if such Shares are not listed or admitted to trading on
any national securities exchange, the last quoted price on the Nasdaq National
Market System, or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the principal automated
quotation system or other quotation service that may then be in use or, if such
Shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
such Shares selected by the Board.
Code.
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.
Behringer Harvard Opportunity REIT I, Inc., a corporation organized under the
laws of the State of Maryland.
Company
Value. The
actual value of the Company as a going concern based on the difference between
(a) the actual value of all of its assets as determined in good faith by the
Board, including a majority of the Independent Directors, and (b) all of its
liabilities as set forth on its then current balance sheet, provided that (i) if
such Company Value is being determined in connection with a Change of Control
that establishes the Company’s net worth (e.g., a tender offer for the Shares,
sale of all of the Shares or a merger) then the Company Value shall be the net
worth established thereby and (ii) if such Company Value is being determined in
connection with a Listing, then the Company Value shall be equal to the number
of outstanding Shares multiplied by the Closing Price of a single Common Share
averaged over a period of 30 trading days during which the Shares are listed or
quoted for trading after the date of Listing. For purposes hereof, a “trading
day” shall be any day on which the NYSE is open for trading whether or not the
Shares are then Listed on the NYSE and whether or not there is an actual trade
of such Shares on any such day. If the holder of Convertible Shares disagree as
to the Company Value as determined by the Board, then each of the holder of
Convertible Shares and the Company (determined by a majority of the Independent
Directors) shall name one appraiser and the two named appraisers shall promptly
agree in good faith to the appointment of one other appraiser whose
determination of the Company Value shall be final and binding on the parties as
to the Company Value. The cost of such appraisal shall be split evenly between
the Company and the Advisor.
-3-
Competitive
Real Estate Commission. A real
estate or brokerage commission paid or, if no such commission is paid, the
amount that customarily would be paid for the purchase or sale of a Property
that is reasonable, customary, and competitive in light of the size, type and
location of the Property (as determined by the Board, including a majority of
the Independent Directors).
Construction
Fee. A fee
or other remuneration for acting as general contractor and/or construction
manager to construct improvements, supervise and coordinate projects or to
provide major repairs or rehabilitations on a Property.
Contract
Purchase Price. The
amount actually paid or allocated in respect of the purchase, development,
construction or improvement of a Property, the amount of funds advanced with
respect to a Mortgage or the amount actually paid or allocated in respect to the
purchase of other Assets, in each case exclusive of Acquisition Fees and
Acquisition Expenses.
Contract
Sales Price. The
total consideration provided for in the sales contract for the sale of a
Property.
Convertible
Shares. The
1,000 shares of the Company’s non-participating, non-voting, convertible stock,
par value $.0001 per share.
Dealer
Manager.
Behringer Securities LP, an Affiliate of the Advisor, or such Person selected by
the Board to act as the dealer manager for an Offering.
Development
Fee. A fee
for the packaging of a Property or Mortgage, including the negotiation and
approval of plans, and any assistance in obtaining zoning and necessary
variances and financing for a specific Property, either initially or at a later
date.
Director. A
member of the Board.
Distributions. Any
dividends or other distributions of money or other property by the Company to
owners of Shares, including distributions that may constitute a return of
capital for federal income tax purposes.
Gross
Proceeds. The
aggregate purchase price of all Shares sold for the account of the Company
through an Offering, without deduction for Selling Commissions, volume
discounts, any marketing support and due diligence expense reimbursement or
Organization and Offering Expenses. For the purpose of computing Gross Proceeds,
the purchase price of any Share for which reduced Selling Commissions are paid
to the Dealer Manager or a Soliciting 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 Offering without reduction.
Independent
Appraiser. A
Person with no material current or prior business or personal relationship with
the Advisor or the Directors and who is a qualified appraiser of Real Property
of the type held by the Company or of other Assets as determined by the Board.
Membership in a nationally recognized appraisal society such as the Appraisal
Institute shall be conclusive evidence of such qualification as to Real
Property.
Independent
Director. A
Director who is not on the date of determination, and within the last two years
from the date of determination has not been, directly or indirectly associated
with the Sponsor, the Company, the Advisor or any of their Affiliates by virtue
of (i) ownership of an interest in the Sponsor, the Advisor or any of their
Affiliates, other than the Company, (ii) employment by the Sponsor, the Company,
the Advisor or any of their Affiliates, (iii) service as an officer or director
of the Sponsor, the
-4-
Advisor
or any of their Affiliates, other than as a Director of the Company, (iv)
performance of services, other than as a Director of the Company, (v) service as
a director or trustee of more than three real estate investment trusts organized
by the Sponsor or advised by the Advisor, or (vi) maintenance of a material
business or professional relationship with the Sponsor, the Advisor or any of
their Affiliates. A business or professional relationship is considered material
if the aggregate gross revenue derived by the Director from the Sponsor, the
Advisor and their Affiliates exceeds 5% of either the Director’s annual gross
income during either of the last two years or the Director’s net worth on a fair
market value basis. An indirect association with the Sponsor or the Advisor
shall include circumstances in which a Director’s spouse, parent, child,
sibling, mother- or father-in-law, son- or daughter-in-law, or brother- or
sister-in-law is or has been associated with the Sponsor, the Advisor, any of
their Affiliates, or the Company.
Intellectual
Property Rights. All
rights, titles and interests, whether foreign or domestic, in and to any and all
trade secrets, confidential information rights, patents, invention rights,
copyrights, service marks, trademarks, know-how, or similar intellectual
property rights and all applications and rights to apply for such rights, as
well as any and all moral rights, rights of privacy, publicity and similar
rights and license rights of any type under the laws or regulations of any
governmental, regulatory, or judicial authority, foreign or domestic and all
renewals and extensions thereof.
Invested
Capital. The
amount calculated by multiplying the total number of Shares purchased by
Stockholders by the issue price, reduced by the portion of any Distribution
(other than any Stock Dividends) that is attributable to Net Sales Proceeds and
by any amounts paid by the Company to repurchase Shares pursuant to the
Company’s plan for repurchase of Shares.
Joint
Ventures. The
joint venture or partnership arrangements in which the Company or the
Partnership is a co-venturer or general partner, which are established to
acquire or hold Assets.
Listing
or Listed. The
listing of the Shares of the Company on a national securities exchange or the
quotation of shares on the Nasdaq National Market System. Upon such Listing, the
Shares shall be deemed Listed.
Mortgages. In
connection with mortgage financing provided, invested in or purchased by the
Company, all of the notes, deeds of trust, security interests or other evidences
of indebtedness or obligations, which are secured or collateralized by Real
Property owned by the borrowers under such notes, deeds of trust, security
interests or other evidences of indebtedness or obligations.
NASAA
Guidelines. The
Statement of Policy Regarding Real Estate Investment Trusts of the North
American Securities Administrators Association, Inc. effective September 29,
1993.
Net
Income. 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 Assets.
Net
Sales Proceeds. In the
case of a transaction described in clause (i)(A) of the definition of Sale, the
proceeds of any such transaction less the amount of selling expenses incurred by
or on behalf of the Company, including all real estate commissions, closing
costs and legal fees and expenses. In the case of a transaction described in
clause (i)(B) of such definition, Net Sales Proceeds means the proceeds of any
such transaction less the amount of selling expenses incurred by or on behalf of
the Company, including any legal fees and expenses and other selling expenses
incurred in connection with such transaction. In the case of a transaction
described in clause (i)(C) of such definition, Net Sales Proceeds means the
proceeds of any such transaction actually distributed to the Company from the
Joint Venture less the amount of any selling expenses, including legal fees and
expenses incurred by or on behalf of the
-5-
Company
(other than those paid by the Joint Venture). In the case of a transaction or
series of transactions described in clause (i)(D) of the definition of Sale, Net
Sales Proceeds means the proceeds of any such transaction (including the
aggregate of all payments under a Mortgage or in satisfaction thereof other than
regularly scheduled interest payments to the extent such interest accrues at a
rate of less than ten percent (10%) per annum) less the amount of selling
expenses incurred by or on behalf of the Company, including all commissions
closing costs and legal fees and expenses. In the case of a transaction
described in clause (i)(E) of such definition, Net Sales Proceeds means the
proceeds of any such transaction less the amount of selling expenses incurred by
or on behalf of the Company, including any legal fees and expenses and other
selling expenses incurred in connection with such transaction. In the case of a
transaction described in clause (ii) of the definition of Sale, Net Sales
Proceeds means the proceeds of such transaction or series of transactions less
all amounts generated thereby which are reinvested in one or more Assets within
180 days thereafter and less the amount of any real estate commissions, closing
costs, and legal fees and expenses and other selling expenses incurred by or
allocated to the Company in connection with such transaction or series of
transactions. Net Sales Proceeds shall also include any consideration (including
non-cash consideration such as stock, notes, or other property or securities)
that the Company determines, in its discretion, to be economically equivalent to
proceeds of a Sale, valued in the reasonable determination of the Company. Net
Sales Proceeds shall not include any reserves established by the Company in its
sole discretion.
NYSE. The New
York Stock Exchange, Inc.
Offering. Any
private or public offering of Shares pursuant to an effective registration
statement filed under the Securities Act or exempt from such filing during
periods from and after the date hereof.
Organization
and Offering Expenses. Any and
all costs and expenses, other than Selling Commissions and the dealer manager
fee (as in effect from time to time), incurred by and to be paid by the Company,
the Advisor or any Affiliate in connection with the formation, qualification and
registration of the Company and the marketing and distribution of its Shares,
including, without limitation, the following: legal, accounting and escrow fees;
printing, amending, supplementing, mailing and distributing costs; filing,
registration and qualification fees and taxes; telecopier and telephone costs;
and all advertising and marketing expenses, including the costs related to
investor and broker-dealer sales meetings.
Partnership.
Behringer Harvard Opportunity OP I, LP, a Texas limited partnership, through
which the Company may own Assets.
Performance
Fee. The fee
payable to the Advisor upon termination of this Agreement under certain
circumstances if certain performance standards have been met pursuant to Section
4.03(b).
Person. An
individual, corporation, association, business trust, estate, trust,
partnership, limited liability company or other legal entity.
Property
or Properties. As the
context requires, any, or all, respectively, of the Real Property acquired by
the Company, either directly or indirectly (whether through joint venture
arrangements or other partnership or investment interests).
Proprietary
Property. All
modeling algorithms, tools, computer programs, know-how, methodologies,
processes, technologies, ideas, concepts, skills, routines, subroutines,
operating instructions and other materials and aides used in performing the
duties set forth in Section 2.02 that relate to investment advice regarding
current and potential Assets, and all modifications, enhancements and derivative
works of the foregoing.
-6-
Prospectus.
Prospectus has the meaning set forth in Section 2(10) of the Securities Act,
including a preliminary prospectus, an offering circular as described in Rule
256 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 of the Company to the public.
Real
Property. Land,
rights in land (including leasehold interests), and any buildings, structures,
improvements, furnishings, fixtures and equipment located on or used in
connection with land and rights or interests in land.
REIT. A
corporation, trust, association or other legal entity (other than a real estate
syndication) that is engaged primarily in investing in equity interests in real
estate (including fee ownership and leasehold interests) or in loans secured by
real estate or both in accordance with Sections 856 through 860 of the Code.
Sale
or Sales. (i) Any
transaction or series of transactions whereby: (A) the Company or the
Partnership directly or indirectly (except as described in other subsections of
this definition) sells, grants, transfers, conveys, or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of a building only, and including any event with respect to
any Property which gives rise to a significant amount of insurance proceeds or
condemnation awards; (B) the Company or the 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 Partnership in any Joint Venture in which it
is a co-venturer or partner; (C) any Joint Venture directly or indirectly
(except as described in other subsections of this definition) in which the
Company or the Partnership as a co-venturer or partner sells, grants, transfers,
conveys, or relinquishes its ownership of any Property or portion thereof,
including any event with respect to any Property which gives rise to insurance
claims or condemnation awards; (D) the Company or the Partnership directly or
indirectly (except as described in other subsections of this definition) sells,
grants, conveys or relinquishes its interest in any Mortgage or portion thereof
(including with respect to any Mortgage, all repayments thereunder or in
satisfaction thereof other than regularly scheduled interest payments) and any
event with respect to a Mortgage which gives rise to a significant amount of
insurance proceeds or similar awards; or (E) the Company or the 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, but (ii) not including any transaction or series of transactions
specified in clause (i) (A) through (E) above in which the proceeds of such
transaction or series of transactions are reinvested in one or more Assets
within 180 days thereafter.
Securities
Act. The
Securities Act of 1933, as amended from time to time, or any successor statute
thereto. Reference to any provision of the Securities Act 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.
Selling
Commissions. Any and
all commissions payable to underwriters, dealer managers or other broker-dealers
in connection with the sale of Shares, including, without limitation,
commissions payable to Behringer Securities LP.
Shares. Any
shares of the Company’s common stock, par value $.0001 per share.
Soliciting
Dealers.
Broker-dealers who are members of the National Association of Securities
Dealers, Inc., or that are exempt from broker-dealer registration, and who, in
either case, have executed participating broker or other agreements with the
Dealer Manager to sell Shares.
-7-
Sponsor. Xxxxxx
X. Xxxxxxxxx.
Stock
Dividend. Any
dividend or other distribution paid to stockholders of the Company in the form
of additional Shares.
Stockholders. The
record holders of the Company’s Shares as maintained in the books and records of
the Company or its transfer agent.
Stockholders’
10% Return. As of
any date, an aggregate amount equal to a 10% cumulative, noncompounded, annual
return on Invested Capital (calculated like simple interest); provided, however,
that for purposes of calculating the Stockholders’ 10% Return, any Stock
Dividend shall not be included as a Distribution; and provided further that for
purposes of determining the Stockholders’ 10% Return, the return for each
portion of the Invested Capital shall commence for purposes of the calculation
upon the issuance of the shares issued in connection with such capital.
Subordinated
Disposition Fee. The fee
payable to the Advisor for services provided in connection with the Sale of one
or more Properties pursuant to Section 3.01(c).
Subordinated
Incentive Listing Fee. The fee
payable to the Advisor under certain circumstances if the Shares are Listed
pursuant to Section 3.01(e).
Subordinated
Share of Net Sales Proceeds. The fee
payable to the Advisor under certain circumstances following receipt of Net
Sales Proceeds pursuant to Section 3.01(d).
Termination
Date. The
date of termination of this Agreement.
Total
Operating Expenses. All
costs and expenses paid or incurred by the Company, as determined under
generally accepted accounting principles, which are in any way related to the
operation of the Company or to Company business, including the Asset Management
Fee, 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 tax 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 depreciation, amortization and bad debt reserves, (v) the
Subordinated Share of Net Sales Proceeds, (vi) the Performance Fee, (vii) the
Subordinated Incentive Listing Fee, (viii) Acquisition Fees and Acquisition
Expenses, (ix) real estate commissions on the Sale of Property, and (x) other
fees and expenses connected with the acquisition, disposition, management and
ownership of real estate interests, mortgage loans or other property (including
the costs of foreclosure, insurance premiums, legal services, maintenance,
repair and improvement of property).
2%/25%
Guidelines. The
requirement pursuant to the NASAA Guidelines that, in any 12 month period, Total
Operating Expenses not exceed the greater of 2% of Average Invested Assets
during such 12 month period or 25% of Net Income over the same 12 month period.
ARTICLE
II
THE
ADVISOR
2.01
Appointment. The
Company hereby appoints the Advisor to serve as its advisor on the terms and
conditions set forth in this Agreement, and the Advisor hereby accepts such
appointment.
-8-
2.02
Duties
of the Advisor. The
Advisor shall be deemed to be in a fiduciary relationship to the Company and its
Stockholders. The Advisor undertakes to use its best efforts to present to the
Company potential investment opportunities and to provide 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 Company’s most recent Prospectus
for Shares, the Articles of Incorporation and Bylaws, the Advisor shall, either
directly or by engaging an Affiliate of the Advisor or other Person:
(a)
serve as
the Company’s investment and financial advisor and provide research and economic
and statistical data in connection with the Assets and investment policies;
(b)
provide
the daily management of the Company and perform and supervise the various
administrative functions reasonably necessary for the management and operations
of the Company;
(c)
maintain
and preserve the books and records of the Company, including stock books and
records reflecting a record of the Stockholders and their ownership of the
Company’s uncertificated Shares, if any, and acting as transfer agent for the
Company’s Shares;
(d)
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,
correspondents, lenders, technical advisors, attorneys, brokers, underwriters,
corporate fiduciaries, escrow agents, depositaries, custodians, agents for
collection, insurers, insurance agents, banks, builders, developers, property
owners, mortgagors, property management companies, transfer agents and any and
all agents for any of the foregoing, including Affiliates of the Advisor, and
Persons acting in any other capacity deemed by the Advisor necessary or
desirable for the performance of any of the foregoing services, including but
not limited to entering into contracts in the name of the Company with any of
the foregoing;
(e)
consult
with the officers and the Board and assist the Board in the formulation and
implementation of the Company’s financial policies, and, as necessary, furnish
the Board with advice and recommendations with respect to the making of
investments consistent with the investment objectives and policies of the
Company and in connection with any borrowings proposed to be undertaken by the
Company;
(f)
subject
to the provisions of Sections 2.02(h) and 2.03 hereof, (i) locate, analyze and
select potential investments in Assets, (ii) structure and negotiate the terms
and conditions of transactions pursuant to which investment in Assets will be
made; (iii) make investments in Assets on behalf of the Company or the
Partnership in compliance with the investment objectives and policies of the
Company; (iv) arrange for financing and refinancing and make other changes in
the asset or capital structure of, and dispose of, reinvest the proceeds from
the sale of, or otherwise deal with the investments in, Assets; and (v) enter
into leases of Property and service contracts for Assets and, to the extent
necessary, perform all other operational functions for the maintenance and
administration of such Assets, including the servicing of Mortgages;
(g)
provide
the Board with periodic reports regarding prospective investments in Assets;
(h)
obtain
the prior approval of the Board (including a majority of all Independent
Directors) for any and all investments in Assets;
-9-
(i)
negotiate
on behalf of the Company with banks or lenders for loans to be made to the
Company, negotiate on behalf of the Company with investment banking firms and
broker-dealers, and negotiate private sales of Shares and other securities of
the Company or obtain loans for the Company, as and when appropriate, but in no
event in such a way so that the Advisor shall be acting as broker-dealer or
underwriter; and provided, further, that any fees and costs payable to third
parties incurred by the Advisor in connection with the foregoing shall be the
responsibility of the Company;
(j)
obtain
reports (which may be prepared by or for the Advisor or its Affiliates), where
appropriate, concerning the value of investments or contemplated investments of
the Company in Assets;
(k)
from time
to time, or at any time reasonably requested by the Board, make reports to the
Board of its performance of services to the Company under this Agreement;
(l)
provide
the Company with all necessary cash management services;
(m) deliver
to or maintain on behalf of the Company copies of all appraisals obtained in
connection with the investments in Assets;
(n) upon
request of the Company, act, or obtain the services of others to act, as
attorney-in-fact or agent of the Company in making, requiring and disposing of
Assets, disbursing, and collecting the funds, paying the debts and fulfilling
the obligations of the Company and handling, prosecuting and settling any claims
of the Company, including foreclosing and otherwise enforcing mortgage and other
liens and security interests comprising any of the Assets;
(o)
supervise
the preparation and filing and distribution of returns and reports to
governmental agencies and to Stockholders and other investors and act on behalf
of the Company in connection with investor relations;
(p)
provide
office space, equipment and personnel as required for the performance of the
foregoing services as Advisor;
(q)
prepare
on behalf of the Company all reports and returns required by the Securities and
Exchange Commission, Internal Revenue Service and other state or federal
governmental agencies; and
(r)
do all
things necessary to assure its ability to render the services described in this
Agreement.
2.03
Authority
of Advisor.
(a)
Pursuant
to the terms of this Agreement (including the restrictions included in this
Section 2.03 and in Section 2.06), 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 (i) locate, analyze and select
investment opportunities, (ii) structure the terms and conditions of
transactions pursuant to which investments will be made or acquired for the
Company or the Partnership, (iii) acquire Properties, make and acquire Mortgages
and invest in other Assets in compliance with the investment objectives and
policies of the Company, (iv) arrange for financing or refinancing of Assets,
(v) enter into leases for the Properties and service contracts for the Assets,
including oversight of Affiliated companies that perform property
-10-
management
or other services for the Company, (vi) oversee non-affiliated and Affiliated
property managers and other non-affiliated and Affiliated Persons who perform
services for the Company, and (vii) undertake accounting and other
record-keeping functions at the Asset level.
(b)
Notwithstanding
the foregoing, any investment in Assets by the Company or the Partnership (as
well as any financing acquired by the Company or the Partnership in connection
with such investment), will require the prior approval of the Board (including a
majority of the Independent Directors).
(c)
The prior
approval of a majority of the Independent Directors and a majority of the Board
not otherwise interested in the transaction will be required for each
transaction with the Advisor or its Affiliates.
(d)
If a
transaction requires approval by the Board, the Advisor will deliver to the
Directors all documents required by them to properly evaluate the proposed
transaction.
The Board
may, at any time upon the giving of notice to the Advisor, modify or revoke the
authority set forth in this Section 2.03. If and to the extent the Board so
modifies or revokes the authority contained herein, the Advisor shall henceforth
submit to the Board for prior approval such proposed transactions involving
investments in Assets as thereafter require prior approval, provided however,
that such modification or revocation shall be effective upon receipt by the
Advisor and shall not be applicable to investment transactions to which the
Advisor has committed the Company prior to the date of receipt by the Advisor of
such notification.
2.04
Bank
Accounts. The
Advisor may establish and maintain one or more bank accounts in its own name for
the account of the Company or in the name of the Company 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, 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 appropriate
accountings of such collections and payments to the Board, its Audit Committee
and the auditors of the Company.
2.05
Records;
Access. The
Advisor shall maintain appropriate records of all its activities hereunder and
make such records available for inspection by the Board and by counsel, auditors
and authorized agents of the Company, at any time or from time to time during
normal business hours. The Advisor shall at all reasonable times have access to
the books and records of the Company.
2.06
Limitations
on Activities.
Anything else in this Agreement to the contrary notwithstanding, the Advisor
shall refrain from taking any action which, in its sole judgment made in good
faith, would (a) adversely affect the status of the Company as a REIT, (b)
subject the Company to regulation under the Investment Company Act of 1940, as
amended, or (c) violate any law, rule, regulation or statement of policy of any
governmental body or agency having jurisdiction over the Company, the Shares or
any of the Company’s securities, or otherwise not be permitted by the Articles
of Incorporation or Bylaws, except if such action shall be ordered by the Board,
in which case the Advisor shall notify promptly 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. The Advisor,
its directors, officers, employees and stockholders, and the directors,
officers, employees and stockholders of the Advisor’s Affiliates shall not be
liable to the Company or to the Board or Stockholders for any act or omission by
the Advisor, its directors, officers, employees or stockholders, or for any act
or omission of any Affiliate of the Advisor, its directors, officers or
employees or stockholders except as provided in Section 5.02 of this Agreement.
-11-
2.07
Relationship
with Directors.
Directors, officers and employees of the Advisor or an Affiliate of the Advisor
may serve as Directors, officers or employees of the Company, except that no
director, officer or employee of the Advisor or its Affiliates who also is a
Director shall receive any compensation from the Company for serving as a
Director other than reasonable reimbursement for travel and related expenses
incurred in attending meetings of the Board.
2.08
Other
Activities of the Advisor. Nothing
herein contained shall prevent the Advisor or its Affiliates from engaging in
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, employee, or
stockholder of the Advisor or its Affiliates to engage in any other business or
to render services of any kind to any other Person. 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. The Advisor
shall report to the Board the existence of any condition or circumstance,
existing or anticipated, of which it has knowledge, which creates or could
create a conflict of interest between the Advisor’s obligations to the Company
and its obligations to or its interest in any other Person. The Advisor or its
Affiliates shall promptly disclose to the Board knowledge of such condition or
circumstance. If the Sponsor, Advisor, Director or Affiliates thereof have
sponsored other investment programs with similar investment objectives which
have investment funds available at the same time as the Company, it shall be the
duty of the Board (including the Independent Directors) to adopt the method set
forth in the Company’s most recent Prospectus for its Shares or another
reasonable method by which investments are to be allocated to the competing
investment entities and to use their best efforts to apply such method fairly to
the Company.
ARTICLE
III
COMPENSATION
3.01
Fees.
(a)
Asset
Management Fee. The
Company shall pay the Advisor a monthly Asset Management Fee on the
15th day of
each month in an amount equal to 1/12th of 0.75%
of Aggregate Assets Value as of the last day of the preceding month.
(b)
Acquisition
and Advisory Fees. The
Company shall pay the Advisor a fee in the amount of 2.5% of the Contract
Purchase Price of each Asset as Acquisition and Advisory Fees payable at the
time and in respect of funds expended for (i) the acquisition of an Asset, (ii)
to the extent that such funds are capitalized, for the development, construction
or improvement of an Asset, or (iii) the making of a Mortgage. The total of all
Acquisition Fees and any Acquisition Expenses shall be limited in accordance
with the Articles of Incorporation.
(c)
Subordinated
Disposition Fee. If the
Advisor or an Affiliate provides a substantial amount of the services (as
determined by a majority of the Independent Directors) in connection with the
Sale of one or more Assets, the Advisor or such Affiliate shall receive, subject
to the satisfaction of the condition outlined below, a Subordinated Disposition
Fee in an amount (the “Contingent
Subordinated Disposition Fee”) equal
to (subject to the limitation in the following paragraph) (i) in the case of the
sale of Property, the lesser of (A) one-half of a Competitive Real Estate
Commission or (B) 3% of the sales price of such Property and (ii) in the case of
the sale of
-12-
any Asset
other than Property, 3% of the sales price of such Asset or Assets. The
Contingent Subordinated Disposition Fee will not be earned or paid unless and
until the Stockholders have received total Distributions in an amount equal to
or in excess of the sum of their aggregate Invested Capital plus the
Stockholders’ 10% Return. To the extent that, in any instance, the Contingent
Subordinated Disposition Fees is not earned and paid due to the foregoing
limitation, the Contingent Subordinated Disposition Fees that would have been
earned and paid had the foregoing limitation not been in place at the time of a
Sale shall be a contingent liability of the Company, which shall be paid if and
only if the conditions set forth in this subparagraph 3.01(c) have been
satisfied and, upon the satisfaction of such condition, the Company shall pay
all such Contingent Subordination Disposition Fees as if such condition had been
satisfied with respect to each such prior Sale.
The
Subordinated Disposition Fee may be payable in addition to real estate
commissions paid to non-Affiliates, provided, however, that the total real
estate commissions paid to all Persons by the Company (together with the
Subordinated Disposition Fee) shall in no case exceed an amount equal to the
lesser of (i) 6% of the Contract Sales Price of an Asset or (ii) the Competitive
Real Estate Commission in respect of any Property.
In the
event this Agreement is terminated prior to such time as the Stockholders have
received total Distributions in an amount equal to or in excess of the sum of
their aggregate Invested Capital plus the Stockholders’ 10% Return through the
Termination Date, the Company Value shall be determined and any contingent
liabilities for the payment of Contingent Subordinated Disposition Fees on
Assets previously sold will be paid if the Company Value plus total
Distributions received prior to the Termination Date equals or exceeds the sum
of the aggregate Invested Capital plus the Stockholders’ 10% Return through the
Termination Date and then only to the extent of such excess.
Following
Listing, and as soon as practicable after determination of Market Value (defined
below), any contingent liabilities for the payment of the Contingent
Subordinated Disposition Fees on Assets previously sold will be earned and paid
if and only if the Stockholders have received or been deemed to have received
total Distributions in an amount equal to or in excess of the sum of the
aggregate Invested Capital plus the Stockholders’ 10% Return through the date of
Listing. For purposes of the preceding sentence, in addition to actual
Distributions received, Stockholders will be deemed to have received
Distributions in the amount equal to the product of the total number of Shares
outstanding and the average closing price of the Shares over the 30-trading-day
period beginning the date of Listing (the “Market
Value”). Once
any Contingent Subordinated Disposition Fees are actually paid, such amounts
shall thereafter be referred to as “Subordinated Disposition Fees.”
(d)
Subordinated
Share of Net Sales Proceeds. Prior
to Listing, upon the consummation of any Sale, the Advisor shall receive a
Subordinated Share of Net Sales Proceeds in an amount equal to 15% of Net Sales
Proceeds less the amount by which the Company’s debt for borrowed money exceeds
the aggregate book value of the Company’s assets after the sale of the Asset(s)
in respect of which the Net Sales Proceeds is being determined.
**Notwithstanding the foregoing, the Subordinated Share of Net Sales Proceeds
will not be earned or paid unless and until the Stockholders have received total
Distributions in an amount equal to or in excess of the sum of their aggregate
Invested Capital plus the Stockholders’ 10% Return. To the extent that, in any
instance, the Subordinated Share of Net Sales Proceeds is not earned and paid
due to the foregoing limitation, the Subordinated Share of Net Sales Proceeds
that would have been earned and paid had the foregoing limitation not been in
place at the time of a Sale shall be a contingent liability of the Company,
which shall be paid if and only if the conditions set forth in the
-13-
preceding
sentence of this subparagraph 3.01(d) have been satisfied and, upon the
satisfaction of such condition, the Company shall pay all such Subordinated
Share of Net Sales Proceeds as if such condition had been satisfied with respect
to each such prior Sale.
Following
Listing, and as soon as practicable after determination of Market Value, if the
Stockholders have received or been deemed to have received total Distributions
in an amount equal to the sum of their aggregate Invested Capital and
Stockholders’ 10% Return through the date of Listing, the Advisor shall receive
a Subordinated Share of Net Sales Proceeds in an amount equal to 15% of Net
Sales Proceeds less the amount by which the Company’s debt for borrowed money
exceeds the aggregate book value of the Company’s assets after the sale of the
Asset(s) in respect of which the Net Sales Proceeds is being determined. For
purposes of this subparagraph (d), in determining whether the Subordinated Share
of Net Sales Proceeds is payable following Listing, in addition to actual
Distributions received, Stockholders will be deemed to have received
Distributions in the amount equal to the Market Value.
(e)
Subordinated
Incentive Listing Fee.
Following Listing, and as soon as practicable after determination of Market
Value, the Advisor shall be entitled to receive a Subordinated Incentive Listing
Fee payable in the form of an interest bearing promissory note (the
“SILF
Note”) in a
principal amount equal to 15% of the amount by which (i) the market value of the
outstanding Shares, measured by taking the Market Value, plus the total of all
Distributions paid to Stockholders from the Company’s inception until the date
of Listing, exceeds (ii) the sum of (A) 100% of Invested Capital and (B) the
total Distributions required to be paid to the Stockholders in order to pay the
Stockholders’ 10% Return from inception through the date of Listing. Interest on
the SILF Note will accrue beginning on the date of Listing at a rate deemed fair
and reasonable by the Independent Directors on the date of Listing. The Company
shall repay the SILF Note using the entire Net Sales Proceeds of each Sale after
Listing until the SILF Note is paid in full, with interest. If the SILF Note has
not been paid in full within five years from the date of Listing, then the
Advisor, its successors or assigns, may elect to convert the balance of the SILF
NOTE, including accrued but unpaid interest, into Shares at a price per Share
equal to the average Closing Price of the Shares over the ten trading days
immediately preceding the date of such election. If the Shares are no longer
listed at such time as the SILF Note becomes convertible into Shares as provided
by this paragraph, then the price per Share, for purposes of conversion, shall
equal the fair market value for the Shares as determined by the Board based upon
the Appraised Value of the Assets as of the date of election. The principal
amount of the SILF Note shall be referred to as “Subordinated Disposition
Fees.”
(f)
Debt
Financing Fee. In the
event of the origination of any debt financing obtained by or for the Company
(including any refinancing of debt), the Company will pay to the Advisor a debt
financing fee equal to one percent (1%) of the amount available under such
financing.
(g)
Limitations
on Payments.
Notwithstanding the foregoing, no payments shall be made under Sections 3.01(d),
3.01(e) or 4.03(b) if, at or prior to the time the payment is due, the
Convertible Shares have been converted into Shares in the case of Sections
3.01(d) and 3.01(e), or, in the case of Section 4.03(b), the determination of
the number of Shares issuable upon conversion of the Convertible Shares has been
made in accordance with Section 5.3(iii)(c) of Article V of the Articles of
Incorporation, in each case, without any
reduction in the number of Convertible Shares converted or in the value or
number of Shares to be issued upon such conversion that may be triggered under
the terms of the Convertible Shares to avoid jeopardizing the Company’s REIT
status. If, however, the Convertible Shares have been converted into Shares in
the case of Sections 3.01(d) and 3.01(e), or, in the case of Section 4.03(b),
the determination of the number of Shares issuable upon conversion of the
Convertible Shares has been made in
-14-
accordance
with Section 5.3(iii)(c) of Article V of the Articles of Incorporation, in each
case, with a
reduction in the number of Convertible Shares converted or in the value or
number of Shares issued upon such conversion triggered under the terms of the
Convertible Shares to avoid jeopardizing the Company’s REIT status, (i) no
payments otherwise due and payable under Section 3.01(d) (“Offset
Payments”) shall
be paid until the aggregate amount of such Offset Payments equals the aggregate
value of the Shares (as determined at the time of such conversion as being the
Company Value divided by the number of Shares outstanding at such time) issued
or issuable upon conversion of the Convertible Shares, and (ii) any payments
otherwise due and payable under Sections 3.01(e) or 4.03(b) shall be reduced,
dollar-for-dollar, by an amount equal to the aggregate value of the Shares (as
determined at the time of such conversion as being the Company Value divided by
the number of Shares outstanding at such time) issued or issuable upon
conversion of the Convertible Shares.
3.02
Expenses.
(a)
In
addition to the compensation paid to the Advisor pursuant to Section 3.01
hereof, the Company shall pay directly or reimburse the Advisor for all of the
expenses paid or incurred by the Advisor in connection with the services it
provides to the Company pursuant to this Agreement, including, but not limited
to:
(i)
Organization
and Offering Expenses; provided, however, that within 60 days after the end of
the month in which an Offering terminates, the Advisor shall reimburse the
Company for any Organization and Offering Expenses reimbursement received by the
Advisor pursuant to this Section 3.02, to the extent that such reimbursement
exceeds 2% of the Gross Proceeds exclusive of Gross Proceeds from shares sold
under the Company’s Distribution Reinvestment Plan. The Advisor shall be
responsible for the payment of all Organization and Offering Expenses in excess
of 2% of the Gross Proceeds exclusive of Gross Proceeds from shares sold under
the Company’s Distribution Reinvestment Plan;
(ii)
Acquisition
Expenses incurred in connection with the selection and acquisition of Assets in
an amount equal to up to 0.5% of the Contract Purchase Price of each
Asset;
(iii)
the
actual cost of goods, services and materials used by the Company and obtained
from Persons not affiliated with the Advisor, other than Acquisition Expenses,
including brokerage fees paid in connection with the purchase and sale of Shares
or other securities;
(iv)
interest
and other costs for borrowed money, including discounts, points and other
similar fees;
(v)
taxes and
assessments on income or property and taxes as an expense of doing business;
(vi) costs
associated with insurance required in connection with the business of the
Company or by the Board;
(vii) expenses
of managing and operating Assets owned by the Company, whether payable to an
Affiliate of the Company or a non-affiliated Person;
-15-
(viii)
all
expenses in connection with payments to the Board for attendance at meetings of
the Board and Stockholders;
(ix) expenses
associated with Listing or with the issuance and distribution of Shares and
other securities of the Company, such as Selling Commissions and fees,
advertising expenses, taxes, legal and accounting fees, Listing and registration
fees, and other Organization and Offering Expenses;
(x)
expenses
connected with payments of Distributions in cash or otherwise made or caused to
be made by the Company to the Stockholders;
(xi)
expenses
of organizing, revising, amending, converting, modifying, or terminating the
Company or the Articles of Incorporation;
(xii)
expenses
of any third party transfer agent for the Shares and of 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;
(xiii) administrative
service expenses (including personnel costs; provided, however, that no
reimbursement shall be made for costs of personnel to the extent that such
personnel perform services in transactions for which the Advisor receives a
separate fee); and
(xiv)
audit,
accounting and legal fees.
(b)
Expenses
incurred by the Advisor on behalf of the Company and payable pursuant to this
Section 3.02 shall be reimbursed no less than quarterly to the Advisor within 60
days after the end of each quarter. The Advisor shall prepare a statement
documenting the expenses of the Company during each quarter, and shall deliver
such statement to the Company within 45 days after the end of each quarter.
3.03
Other
Services. Should
the Board request that the Advisor or any director, officer or employee thereof
render services for the Company other than set forth in Section 2.02, 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.
3.04
Reimbursement
to the Advisor. The
Company shall not reimburse the Advisor for Total Operating Expenses to the
extent that Total Operating Expenses (including the Asset Management Fee), in
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 for such year. Any
Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the
Company. Reimbursement of all or any portion of the Total Operating Expenses
that exceed the limitation set forth in the preceding sentence may, at the
option of the Advisor, be deferred without interest and may be reimbursed in any
subsequent Expense Year where such limitation would permit such reimbursement if
the Total Operating Expense were incurred during such period. Notwithstanding
the foregoing, 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, the Excess Amount may be
reimbursed to the Advisor. Within 60 days after the end of any fiscal quarter of
the Company for which there is an Excess Amount which the Independent Directors
conclude was justified and reimbursable to the Advisor, there
-16-
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 Amount was justified. Such determination shall be reflected in
the minutes of the meetings of the Board. The Company will not reimburse the
Advisor or its Affiliates for services for which the Advisor or its Affiliates
are entitled to compensation in the form of a separate fee. All figures used in
any computation pursuant to this Section 3.04 shall be determined in accordance
with generally accepted accounting principles applied on a consistent basis.
ARTICLE
IV
TERM
AND TERMINATION
4.01
Term;
Renewal. Subject
to Section 4.02 hereof, this Agreement shall continue in force until the first
anniversary of the date hereof. Thereafter, this Agreement may be renewed for an
unlimited number of successive one-year terms upon mutual consent of the
parties. It is the duty of the Board to evaluate the performance of the Advisor
annually before renewing the Agreement, and each such renewal shall be for a
term of no more than one year.
4.02
Termination. This
Agreement will automatically terminate upon Listing. This agreement also may be
terminated at the option of either party (i) immediately upon a Change of
Control or (ii) upon 60 days written notice without cause or penalty (in either
case, if termination is by the Company, then such termination shall be upon the
approval of a majority of the Independent Directors). Notwithstanding the
foregoing, the provisions of this Agreement which provide for payment to the
Advisor of expenses, fees or other compensation following the date of
termination (i.e.,
Sections 3.01(e) and 4.03) shall continue in full force and effect until all
amounts payable thereunder to the Advisor are paid in full.
4.03
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 and receive from the Company
within 30 days after the effective date of such termination all unpaid
reimbursements of expenses, subject to the provisions of Section 3.04 hereof,
and all contingent liabilities related to fees payable to the Advisor prior to
termination of this Agreement, provided that the Subordinated Incentive Listing
Fee, if any, shall be paid in accordance with the provisions of Section 3.01(e).
In the event the Subordinated Incentive Listing Fee is paid to the Advisor
following Listing, no Performance Fee will be paid to the Advisor pursuant to
Sections 4.03(b) below.
(b)
Upon
termination, unless such termination is by the Company because of a material
breach of this Agreement by the Advisor, or upon Listing (in which case the
Subordinated Incentive Listing Fee will be paid in accordance with the
provisions of Section 3.01(e)), the Advisor shall be entitled to receive a
Performance Fee payable in the form of an interest bearing promissory note (the
“Performance
Fee Note”) in a
principal amount equal to the product of 0.15 times the amount, if any, by which
(i) the Company Value plus the total Distributions paid to holders of Shares
through the Termination Date, exceeds (ii) the sum of the aggregate Invested
Capital plus the Stockholders’ 10% Return through the Termination Date. Interest
on the Performance Fee Note will accrue beginning on the Termination Date at a
rate deemed fair and reasonable by the Independent Directors. The Company shall
repay the Performance Fee Note using the entire Net Sales Proceeds of each Sale
after the Termination Date until the Performance Fee Note is paid in full, with
interest. If the Performance Fee Note has not been paid in full within five
years from the Termination Date, then the Advisor, its successors or assigns,
may elect to convert the balance of the Performance Fee Note, including accrued
but unpaid interest,
-17-
into
Shares at a price per Share equal to the average Closing Price of the Shares
over the ten trading days immediately preceding the date of such election if the
Shares are Listed at such time. If the Shares are not Listed at such time, the
Advisor, its successors or assigns, may elect to convert the balance of the
Performance Fee Note, including accrued but unpaid interest, into Shares at a
price per Share equal to the fair market value for the Shares as determined by
the Board based upon the Appraised Value of the Assets on the date of election.
In no event will the amount paid to the Advisor under the Performance Fee Note,
including interest, exceed the amount considered presumptively reasonable under
Section IV.F. of the NASAA REIT Guidelines in effect on the date hereof (the
“NASAA
Limit”). In
such event, the aggregate amount payable under the Performance Fee Note,
including interest, shall be reduced to an amount equal to the NASAA
Limit.
(c)
In the
event that the Advisor disagrees with the valuation of Shares pursuant to
Section 4.03(b) where the Shares are not Listed, for purposes of determining the
number of shares to be issued to the Advisor following the Advisor’s election to
convert the balance of the Performance Fee Note owed to the Advisor, then the
fair market value of such shares shall be determined by an independent appraiser
of equity value selected by the Advisor and the Company. If the Advisor and the
Company are unable to agree upon an expert independent appraiser, then each of
the Company and the Advisor shall name one appraiser and the two named
appraisers shall promptly agree in good faith to the appointment of one such
appraiser whose determination shall be final and binding on the parties. The
cost of such appraisal shall be shared evenly between the Company and the
Advisor.
(d)
The
Advisor shall promptly upon termination:
(i)
pay over
to the Company all money collected and held for the account of the Company
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 the Assets, and documents of the Company then
in the custody of the Advisor; and
(iv)
cooperate
with the Company and take all reasonable actions requested by the Company to
provide an orderly management transition.
ARTICLE
V
INDEMNIFICATION
5.01
Indemnification
by the Company.
| (a) |
The
Company shall indemnify and hold harmless the Advisor and its Affiliates,
including their respective officers, directors, partners and employees,
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, subject to any
limitations imposed by the laws of the State of Maryland, the Articles of
|
-18-
| Incorporation and the NASAA Guidelines. Notwithstanding the foregoing, under the Articles of Incorporation, the Company shall not indemnify or hold harmless the Advisor or its Affiliates, including their respective officers, directors, partners and employees, for any liability or loss suffered by the Advisor or its Affiliates, including their respective officers, directors, partners and employees, nor shall it provide that the Advisor or its Affiliates, including their respective officers, directors, partners and employees, be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met: (i) the Advisor or its Affliates, including their respective officers, directors, partners and employees, have determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of the Company; (ii) the Advisor or its Affiliates, including their respective officers, directors, partners and employees, were acting on behalf of or performing services of the Company; (iii) such liability or loss was not the result of negligence or misconduct by the Advisor or its Affiliates, including their respective officers, directors, partners and employees; and (iv) such indemnification or agreement to hold harmless is recoverable only out of the Company's net assets and not from stockholders. Notwithstanding the foregoing, the Advisor and its Affiliates, including their respective officers, directors, partners and employees, shall not be indemnified by the Company for any losses, liability or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; and (iii) a court of competent jurisdiction approves a settlement of the claims against a particular 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 Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws. |
| (b) | The Articles of Incorporation provide that the advancement of Company funds to the Advisor or its Affiliates, including their respective officers, directors, partners and employees, for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought is permissible only if all of the following conditions are satisfied: (i) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (ii) 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 his or her capacity as such and a court of competent jurisdiciton specifically approves such advancement; (iii) the Advisor or its Affiliates, including their respective officers, directors, partners and employees, undertake to repay the advanced funds to the Company together with the applicable legal rate of interest thereon, in cases in which such Advisor or its Affiliates, including their respective officers, directors, partners and employees, are found not to be entitled to indemnification. |
| (c) | The indemnity provided for pursuant to this Section 5.01 shall extend, without limitation, to any claims to the extent relating to any of the events or outcomes set forth in the Prospectus as possible results, outcomes or risks associated with the business and investment objectives of the Company. Notwithstanding the provisions of this Section 5.01, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Section 5.01 for any activity which the Advisor shall be required to indemnify or hold harmless the Company pursuant to Section 5.02. |
-19-
5.02
Indemnification
by Advisor. The
Advisor shall indemnify and hold harmless the Company 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, misfeasance, misconduct,
negligence or reckless disregard of its duties, but 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.
ARTICLE
VI
MISCELLANEOUS
6.01
Assignment
to an Affiliate. This
Agreement may be assigned by the Advisor to an Affiliate of the Advisor with the
approval of a majority of the Board (including a majority of the Independent
Directors). The Advisor may assign any rights to receive fees or other payments
under this Agreement without obtaining the approval of the Board. This Agreement
shall not be assigned by the Company without the consent of the Advisor, except
in the case of an assignment by the Company to a corporation or other
organization which is a successor to all of the assets, rights and obligations
of the Company, in which case such successor organization shall be bound
hereunder and by the terms of said assignment in the same manner as the Company
is bound by this Agreement. This Agreement shall be binding on successors to the
Company resulting from a Change of Control or sale of all or substantially all
the assets of the Company or the Partnership, and shall likewise be binding upon
any successor to the Advisor.
6.02
Relationship
of Advisor and Company. The
Company and the Advisor are not partners or joint venturers with each other, and
nothing in this Agreement shall be construed to make them such partners or joint
venturers or impose any liability as such on either of them.
6.03
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 or by overnight mail or other overnight delivery service
to the addresses set forth herein:
|
To
the Directors and to the Company: |
|
|
00000
Xxxxxx Xxxxxxx | |
|
Xxxxx
000 | |
|
Xxxxxxx,
Xxxxx 00000 | |
|
To
the Advisor: |
Behringer
Harvard Opportunity Advisors I LP |
|
00000
Xxxxxx Xxxxxxx | |
|
Xxxxx
000 | |
|
Xxxxxxx,
Xxxxx 00000 |
Either
party shall, as soon as reasonably practicable, give notice in writing to the
other party of a change in its address for the purposes of this Section 6.03.
6.04
Modification. This
Agreement shall not be changed, modified, or amended, in whole or in part,
except by an instrument in writing signed by both parties hereto, or their
respective successors or assignees.
-20-
6.05
Severability. The
provisions of this Agreement are independent of and severable from each other,
and no provision shall be affected or rendered invalid or unenforceable by
virtue of the fact that for any reason any other or others of them may be
invalid or unenforceable in whole or in part.
6.06
Choice
of Law; Venue. The
provisions of this Agreement shall be construed and interpreted in accordance
with the laws of the State of Texas, and venue for any action brought with
respect to any claims arising out of this Agreement shall be brought exclusively
in Dallas County, Texas.
6.07
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 and/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 signed by each of the parties hereto.
6.08
Waiver. Neither
the failure nor any delay on the part of a party to exercise any right, remedy,
power or privilege under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any other right,
remedy, power or privilege, nor shall any waiver of any right, remedy, power or
privilege with respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
6.09
Gender;
Number. 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.
6.10
Headings. The
titles and headings 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.
6.11
Execution
in Counterparts. This
Agreement may be executed in multiple 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.
6.12
Name.
Behringer
Harvard Opportunity Advisors I LP and/or one or more of its Affiliates has a
proprietary interest in the names “Harvard” (for the businesses engaged in by
the Company and its Affiliates) and “Behringer” (for all purposes). Accordingly,
and in recognition of this right, if at any time the Company ceases to retain
Behringer Harvard Opportunity Advisors I LP or an Affiliate thereof to perform
the services of Advisor, the Company will, promptly after receipt of written
request from Behringer Harvard Opportunity Advisors I LP, cease to conduct
business under or use the name “Harvard” or “Behringer” or any diminutive
thereof and the Company shall use its best efforts to change the name of the
Company to a name that does not contain the name “Harvard” or “Behringer” or
any
-21-
other
word or words that might, in the sole discretion of Behringer Harvard
Opportunity Advisors I LP LP, be susceptible of indication of some form of
relationship between the Company and Behringer Harvard Opportunity Advisors I LP
or any Affiliate thereof. Consistent with the foregoing, it is specifically
recognized that Behringer Harvard Opportunity Advisors I LP 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
“Harvard” or “Behringer” as a part of their name, all without the need for any
consent (and without the right to object thereto) by the Company or its Board.
6.13
Initial
Investment. The
Advisor or one of its Affiliates has contributed $200,000 (the “Initial
Investment”) in
exchange for the initial issuance of Shares of the Company. The Advisor or its
Affiliates may not sell any of the Shares purchased with the Initial Investment
while the Advisor acts in an advisory capacity to the Company. The restrictions
included above shall not apply to any Shares acquired by the Advisor or its
Affiliates other than the Shares acquired through the Initial Investment.
Neither the Advisor nor its Affiliates shall vote any Shares they now own, or
hereafter acquires, in any vote for the election of Directors or any vote
regarding the approval or termination of any contract with the Advisor or any of
its Affiliates.
6.14
Ownership
of Proprietary Property. The
Advisor retains ownership of and reserves all Intellectual Property Rights in
the Proprietary Property. To the extent that the Company has or obtains any
claim to any right, title or interest in the Proprietary Property, including
without limitation in any suggestions, enhancements or contributions that
Company may provide regarding the Proprietary Property, the Company hereby
assigns and transfers exclusively to the Advisor all right, title and interest,
including without limitation all Intellectual Property Rights, free and clear of
any liens, encumbrances or licenses in favor of the Company or any other party,
in and to the Proprietary Property. In addition, at the Advisor’s expense, the
Company will perform any acts that may be deemed desirable by the Advisor to
evidence more fully the transfer of ownership of right, title and interest in
the Proprietary Property to the Advisor, including but not limited to the
execution of any instruments or documents now or hereafter requested by the
Advisor to perfect, defend or confirm the assignment described herein, in a form
determined by the Advisor.
-22-
IN
WITNESS WHEREOF, the
parties hereto have executed this Advisory Agreement as of the date and year
first above written.
|
By:
Xxxxxx
X. Xxxxxxx, III Executive Vice President - Corporate Development and Legal | |
|
BEHRINGER
HARVARD OPPORTUNITY ADVISORS I LP
By:
Harvard Property Trust, LLC,
its General Partner
By:
Xxxxxx
X. Xxxxxxx, III Executive Vice President - Corporate Development and Legal |
-23-
