EXHIBIT 10.1
BUSINESS MANAGEMENT AGREEMENT
THIS BUSINESS MANAGEMENT AGREEMENT (this "Agreement"), dated as of February
[__], 2005, is entered into by and between INLAND AMERICAN REAL ESTATE TRUST,
INC., a Maryland corporation (the "Company"), and INLAND AMERICAN BUSINESS
MANAGER & ADVISOR INC., an Illinois corporation (the "Business Manager").
WITNESSETH:
WHEREAS, the Company has registered with the Securities and Exchange
Commission to issue Shares (as defined in SECTION 1 below) in a public offering
and may subsequently issue securities other than these Shares ("Securities");
WHEREAS, the Company intends to qualify as a REIT (as defined in SECTION 1
below), and to make investments permitted by the terms of the Articles of
Incorporation (as defined below) and Sections 856 through 860 of the Code (as
defined in SECTION 1 below);
WHEREAS, the Company desires to avail itself of the experience, sources of
information, advice, assistance and facilities available to the Business Manager
and to have the Business Manager undertake the duties and responsibilities
hereinafter set forth, on behalf of, and subject to the supervision of, the
Board of Directors (as defined in SECTION 1 below), all as provided herein; and
WHEREAS, the Business Manager is willing to undertake to render these
services, subject to the supervision of the Board of Directors, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the following capitalized terms shall
have the meanings set forth below:
"ACQUISITION CO." means Inland Real Estate Acquisitions, Inc., an
Illinois Corporation.
"ACQUISITION EXPENSES" means any and all expenses incurred by the
Company, the Business Manager or any Affiliate of either in connection with
selecting, evaluating or acquiring any investment in Real Estate Assets,
including but not limited to legal fees and expenses, travel and communication,
appraisals and surveys, nonrefundable option payments regardless of whether the
Real Estate Asset is acquired, accounting fees and expenses, computer related
expenses, architectural and engineering reports, environmental and asbestos
audits and surveys, title insurance and escrow fees, and personal and
miscellaneous expenses.
"ACQUISITION FEES" means the total of all fees and commissions,
excluding Acquisition Expenses, paid by any Person to any other Person
(including any fees or
commissions paid by or to the Company, the Business Manager or any Affiliate of
either) in connection with an investment in Real Estate Assets or purchasing,
developing or constructing a property by the Company. For these purposes, the
fees or commissions shall include any real estate commission, selection fee,
development fee, construction fee, nonrecurring management fee, loan fee,
including points, or any fee of a similar nature, however designated, except for
development fees and construction fees paid to any Person not Affiliated with
the Sponsor or Business Manager in connection with the actual development and
construction of a project, or fees in connection with temporary short-term
investments acquired for purposes of cash management.
"ACQUISITION OF A REAL ESTATE OPERATING COMPANY" means the
acquisition of a Real Estate Operating Company by the Company or a wholly-owned
subsidiary of the Company: (i) by purchasing at least fifty and one-tenth
percent (50.1%) of the capital stock or other equity interest in a Real Estate
Operating Company, or by merger or other business combination, reorganization or
tender offer or (ii) by acquiring all or substantially all of a Real Estate
Operating Company's assets in a single or series of purchases.
"AFFILIATE" means, with respect to any other Person:
(a) any Person directly or indirectly owning, controlling or
holding, with the power to vote, ten percent (10.0%) or more of the
outstanding voting securities of such other Person;
(b) any Person ten percent (10.0%) or more of whose outstanding
voting securities are directly or indirectly owned, controlled or held,
with the power to vote, by such other Person;
(c) any Person directly or indirectly controlling, controlled by
or under common control with such other Person;
(d) any executive officer, director, trustee, general partner or
manager of such other Person; and
(e) any legal entity for which such Person acts as an executive
officer, director, trustee, general partner or manager.
"AFFILIATED DIRECTORS" means those directors of the Company who are
affiliated with the Sponsor.
"ARTICLES OF INCORPORATION" means the articles of incorporation of
the Company, as amended or restated from time to time.
"AVERAGE INVESTED ASSETS" means, for any period, the average of the
aggregate Book Value of the assets of the Company, including lease intangibles,
invested, directly or indirectly, in financial instruments, debt and equity
securities and equity interests in and loans secured by Real Estate Assets
including amounts invested in Real Estate Operating Companies, before reserves
for depreciation or bad debts or other similar non-cash reserves, computed by
taking the average of these values at the end of each month during the period.
2
"BOARD OF DIRECTORS" means the persons holding the office of
director of the Company as of any particular time under the Articles of
Incorporation.
"BOOK VALUE" means the value of the particular asset on the books
and records of the Company, before any allowance for depreciation or
amortization.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder or corresponding provisions of subsequent
revenue laws.
"COMPANY FIXED ASSETS" means the Real Property, together with the
buildings, leasehold interests, improvements, equipment, furniture, fixtures and
personal property associated therewith, used by the Company in conducting its
business.
"CURRENT RETURN" means a non-cumulative, non-compounded return,
equal to five percent (5.0%) per annum on Invested Capital.
"DUE DILIGENCE EXPENSE ALLOWANCE" means any and all bona fide
amounts reimbursed for expenses incurred by any underwriters, dealer managers or
other broker-dealers in connection with investigating the Company or any
offering of Securities made by the Company.
"EQUITY STOCK" means all classes or series of capital stock of the
Company, including, without limit, its common stock, $.001 par value per share,
and preferred stock, $.001 par value per share.
"FISCAL YEAR" means the calendar year ending December 31.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time, consistently applied.
"GROSS OFFERING PROCEEDS" means the total proceeds from the sale of
500,000,000 Shares in the Offering before deducting Offering Expenses. For
purposes of calculating Gross Offering Proceeds, the selling price for all
Shares, including those for which volume discounts apply, shall be deemed to be
$10.00 per Share. Unless specifically included in a given calculation, Gross
Offering Proceeds does not include any proceeds from the sale of Shares under
the Company's distribution reinvestment plan.
"INDEMNITEE" OR "INDEMNITEES" means any person(s), entity or
entities seeking indemnity under SECTION 23 hereof.
"INDEPENDENT DIRECTOR" means any director of the Company who:
(a) is not associated and has not been associated within the two
years prior to becoming an Independent Director, directly or indirectly,
with the Company, the Sponsor or the Business Manager, whether by ownership
of, ownership interest in, employment by, any material business or
professional relationship with, or as an officer or director of the
Company, the Sponsor, the Business Manager or any of their Affiliates;
3
(b) does not serve as a director for more than two other REITs
organized by the Sponsor for the Company, except as a directors; and
(c) performs no other services for the Company, except as a
director.
For purposes of this definition, a business or professional relationship will be
considered material if the gross revenue derived by the director exceeds five
percent (5.0%) of either the director's annual gross revenue during either of
the last two years or the director's net worth on a fair market value basis. An
indirect relationship shall include circumstances in which a director's spouse,
parents, children, siblings, mothers- or fathers-in-law, sons- or
daughters-in-law or brothers- or sisters-in-law is or has been associated with
the Company, the Sponsor, the Business Manager or any of their Affiliates during
the last two years.
"INVESTED CAPITAL" means the original issue price paid for the
Shares reduced by prior distributions from the sale or financing of the
Company's Properties.
"MARKETING CONTRIBUTION" means any and all compensation payable to
underwriters, dealer managers or other broker-dealers for expenses in connection
with marketing the sale of Shares, including, without limitation, compensation
payable to Inland Securities Corporation.
"MANAGEMENT FEE" means any fees payable to the Business Manager
under SECTION 8(a) or SECTION 10 of this Agreement.
"NET INCOME" means, for any period, the aggregate amount of total
revenues applicable to the period less the expenses applicable to the same
period other than additions to, or allowances for, reserves for depreciation,
amortization or bad debts or other similar noncash reserves all calculated in
accordance with GAAP; provided, however, that Net Income shall not include any
gain recognized upon the sale of the Company's assets.
"NET SALES PROCEEDS" means the proceeds from the sale, grant or
conveyance of any Real Estate Assets, including assets owned by a Real Estate
Operating Company that is acquired by the Company and operated as one of its
subsidiaries, less any costs incurred in selling the asset including, but not
limited to, legal fees and selling commissions and further reduced by the amount
of any indebtedness encumbering the asset and any amounts reinvested in one or
more Real Estate Assets or set aside as a reserve within one hundred eighty
(180) days of closing of sale, grant or conveyance.
"OFFERING" means the initial public offering of Shares on a "best
efforts" basis pursuant to the Prospectus dated [__________] [__], 2005.
"OFFERING EXPENSES" means all expenses incurred by, and to be paid
from, the assets of the Company in connection with and in preparing the Company
for registration and offering its Shares to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees and expenses of underwriters' attorneys paid by the Company),
expenses for printing, engraving, mailing, salaries of the Company's employees
while engaged in sales activity, charges of transfer agents, registrars,
trustees, escrow holders,
4
depositaries, experts, expenses of qualification of the sale of the securities
under federal and state laws, including taxes and fees and accountants' and
attorneys' fees and expenses.
"ORGANIZATION EXPENSES" means the aggregate of all Offering
Expenses, including Selling Commissions, the Marketing Contribution and the Due
Diligence Expense Allowance.
"PERSON" means any individual, corporation, business trust, estate,
trust, partnership, limited liability company, association, two or more persons
having a joint or common interest or any other legal or commercial entity.
"PRIMARY GEOGRAPHICAL AREA OF INVESTMENT" means, with respect to the
Company, the United States and Canada.
"PROPERTY" or "PROPERTIES" means interests in (i) Real Property or
(ii) any buildings, structures, improvements, furnishings, fixtures and
equipment, whether or not located on the Real Property, in each case owned or to
be owned by the Company either directly or indirectly through one or more
Affiliates, joint ventures, partnerships or other legal entities.
"PROPERTY MANAGER" means Inland North American Property Management
Corp., a Delaware corporation, and any of its successors and assigns.
"PROSPECTUS" means the final prospectus of the Company in connection
with the registration of Shares filed with the Securities and Exchange
Commission on Form S-11, as amended and supplemented.
"REAL ESTATE ASSETS" means any and all investments in: (i) Real
Property whether directly or indirectly through owned or controlled subsidiaries
or a Real Estate Operating Company and including amounts invested in joint
ventures; (ii) loans, or other evidence of indebtedness secured, directly or
indirectly, by interests in Real Property; (iii) mortgage backed securities; and
(iv) "Real Estate Assets" as that term is defined in the Articles of
Incorporation.
"REAL ESTATE OPERATING COMPANY" means: (i) any entity that has
equity securities registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); (ii) any entity that
files periodic reports under Sections 13 or 15(d) of the Exchange Act; or (iii)
any entity that, either itself or through its subsidiaries:
(a) owns and operates interests in real estate on a going concern
basis rather than as a conduit vehicle for investors to participate in the
ownership of assets for a limited period of time;
(b) has a policy or purpose of reinvesting sale, financing or
refinancing proceeds or cash from operations;
(c) has its own directors, managers or managing general partners,
as applicable; and
(d) either (1) has its own officers and employees that, on a
daily basis, actively operate the entity and its subsidiaries and
businesses, or (2) has retained the services of an
5
affiliate or sponsor of, or advisor to, the entity to, on a daily basis,
actively operate the entity and its subsidiaries and businesses.
"REAL PROPERTY" means land, rights or interests in land (including,
but not limited to, leasehold interests), and any buildings, structures,
improvements, furnishings, fixtures and equipment located on, or used in
connection with, land and rights or interest in land.
"REIT" means a real estate investment trust as defined in Sections
856 through 860 of the Code.
"SHARES" means the shares of common stock, par value $.001 per
share, of the Company, and "Share" means one of those Shares.
"SELLING COMMISSIONS" means any and all commissions, not to exceed
seven and one-half percent (7.5%) of the gross offering price of any Shares,
payable to underwriters, dealer managers or other broker-dealers in connection
with the sale of Shares, including, without limitation, commissions payable to
Inland Securities Corporation.
"SPONSOR" means Inland Real Estate Investment Corporation, a
Delaware corporation.
"STOCKHOLDERS" means holders of shares of Equity Stock.
"TOTAL OPERATING EXPENSES" means the aggregate expenses of every
character paid or incurred by the Company as determined under GAAP, including
the Management Fee and other fees payable hereunder, but excluding:
(a) the expenses of raising capital such as Offering Expenses,
Organization Expenses, legal, audit, accounting, underwriting, brokerage,
listing, registration and other fees, printing and other expenses and taxes
incurred in connection with the issuance, distribution, transfer,
registration and listing of any shares of the Equity Stock;
(b) property expenses;
(c) interest payments;
(d) taxes;
(e) non-cash charges such as depreciation, amortization and bad
debt reserves;
(f) any incentive fees payable hereunder; and
(g) Acquisition Fees, Acquisition Expenses, real estate
commissions on resale of property and other expenses connected with
acquiring, disposing and owning real estate interests, mortgage loans, or
other property (such as the costs of foreclosure, insurance premiums, legal
services, maintenance, repair and property improvements).
6
2. DUTIES OF THE BUSINESS MANAGER. The Business Manager shall consult
with the Company and shall, at the request of the Board of Directors or the
officers of the Company, furnish advice and recommendations with respect to all
aspects of the business and affairs of the Company. The Business Manager shall
inform the Board of Directors of factors that come to the Business Manager's
attention that may, in its opinion, influence the policies of the Company.
Subject to the supervision of the Board of Directors and consistent with the
provisions of the Articles of Incorporation, the Business Manager shall use its
best efforts to:
(a) subject to the terms and conditions set forth in that certain
Property Acquisition Agreement by and between the Company and Acquisition
Co., of even date herewith, use commercially reasonable efforts to identify
potential investment opportunities in Real Estate Assets located in the
Primary Geographical Area of Investment and consistent with the Company's
investment objectives and policies; including but not limited to:
(i) locating, analyzing and selecting potential
investments in Real Estate Assets;
(ii) structuring and negotiating the terms and conditions
of acquisition and disposition transactions;
(iii) arranging for financing and refinancing and making
other changes in the asset or capital structure of the Company and
disposing of and reinvesting the proceeds from the sale of, or
otherwise deal with the investments in, Real Estate Assets; and
(iv) entering into leases and service contracts, on the
Company's behalf, for Real Estate Assets and, to the extent
necessary, performing all functions necessary to maintain and
administer the Company's assets.
(b) assist the Board of Directors in evaluating these investment
opportunities;
(c) provide the Board of Directors with research and other
statistical data and analysis in connection with the Company's assets,
operations and investment policies;
(d) manage the Company's day-to-day operations, consistent with
the investment objectives and policies established by the Board of
Directors from time to time;
(e) investigate, select and conduct relations with lenders,
consultants, accountants, brokers, property managers, attorneys,
underwriters, appraisers, insurers, corporate fiduciaries, banks, builders
and developers, sellers and buyers of investments and persons acting in any
other capacity specified by the Company from time to time, and enter into
contracts in the Company's name with, and retaining and supervising
services performed by, such parties in connection with investments that
have been or may be acquired or disposed of by the Company;
7
(f) cooperate with the Property Manager in connection with
property management services and other activities relating to the Company's
assets, subject to the requirement that the Business Manager or the
Property Manager, as the case may be, qualifies as an "independent
contractor" as that phrase is used in connection with applicable laws,
rules and regulations affecting REITs that own Real Property;
(g) 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,
acquiring and disposing of investments, 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 securing investments;
(h) assist in negotiations on behalf of the Company with
investment banking firms and other institutions or investors for public or
private sales of Securities of the Company or for other financing on behalf
of the Company, provided that in no event may the Business Manager act as a
broker, dealer, underwriter or investment advisor of, or for, the Company;
(i) maintain, with respect to any Real Property and to the extent
available, title insurance or other assurance of title and customary fire,
casualty and public liability insurance;
(j) supervise the preparation and filing and distribution of
returns and reports to governmental agencies and to investors and act on
behalf of the Company in connection with investor relations;
(k) provide office space, equipment and personnel as required for
the performance of the foregoing services as Business Manager;
(l) advise the Board of Directors, from time to time, of the
Company's operating results and coordinating preparation, with each
property manager, of an operating budget including one, three and five year
projections of operating results and such other reports as may be
appropriate for each Real Estate Asset;
(m) 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 relating to the
Company and its operations;
(n) undertake and perform all services or other activities
necessary and proper to carry out the Company's investment objectives;
(o) provide the Company with all necessary cash management
services;
(p) maintain the Company's books and records including, but not
limited to, appraisals or fairness opinions obtained in connection with
acquiring or disposing Real Estate Assets; and
8
(q) enter into ancillary agreements with the Sponsor and its
Affiliates to arrange for the services and licenses to be provided by the
Business Manager hereunder.
3. NO PARTNERSHIP OR JOINT VENTURE. The Company and the Business
Manager are not, and shall not be deemed to be, partners or joint venturers with
each other.
4. REIT QUALIFICATIONS. Notwithstanding any other provision of this
Agreement to the contrary, the Business Manager shall refrain from taking any
action that, in its reasonable judgment or in any judgment of the Board of
Directors of which the Business Manager has written notice, would adversely
affect the qualification of the Company as a REIT under the Code or that would
violate any law, rule or regulation of any governmental body or agency having
jurisdiction over the Company or its Securities, or that would otherwise not be
permitted by the Articles of Incorporation. If any such action is ordered by the
Board of Directors, the Business Manager shall promptly notify the Board of
Directors that, in the Business Manager's judgment, the action would adversely
affect the Company's status as a REIT or violate any law, rule or regulation or
the Articles of Incorporation and shall refrain from taking such action pending
further clarification or instruction from the Board of Directors.
5. BANK ACCOUNTS. At the direction of the Board of Directors or the
officers of the Company, the Business Manager shall establish and maintain bank
accounts in the name of the Company, and shall collect and deposit into and
disburse from such accounts moneys on behalf of the Company, upon such terms and
conditions as the Board of Directors may approve, provided that no funds in any
such account shall be commingled with funds of the Business Manager. The
Business Manager shall, from time to time, as the Board of Directors or the
officers of the Company may require, render appropriate accountings of such
collections, deposits and disbursements to the Board of Directors and to the
Company's auditors.
6. FIDELITY BOND. The Business Manager shall not be required to obtain
or maintain a fidelity bond in connection with performing its services
hereunder.
7. INFORMATION FURNISHED TO THE BUSINESS MANAGER. The Board of
Directors will keep the Business Manager informed in writing concerning the
investment and financing policies of the Company. The Board of Directors shall
notify the Business Manager promptly in writing of the Board of Director's
intention to make any investments or to sell or dispose of any existing
investments. The Company shall furnish the Business Manager with a certified
copy of all financial statements, a signed copy of each report prepared by
independent certified public accountants and such other information with regard
to its affairs as the Business Manager may reasonably request.
9
8. COMPENSATION. Subject to the provisions of SECTION 13 hereof, for
services rendered hereunder the Company shall pay to the Business Manager or its
designee the following:
(a) A Management Fee of not more than one percent (1.0%) of the
Average Invested Assets, payable quarterly in an amount equal to
one-quarter of one percent (0.25%) of the Average Invested Assets of the
Company as of the last day of the immediately preceding quarter; provided
that in no event shall the Company be obligated to pay a Management Fee
unless and until all of its Stockholders have received the Current Return.
This fee terminates if the Company acquires the Business Manager.
(b) An Acquisition Fee, equal to two and one-half percent (2.5%)
of the aggregate purchase price paid upon Acquisition of a Real Estate
Operating Company; provided, however, that Acquisition Fees shall not be
paid for acquisitions solely of a fee interest in Property. The Company
shall pay Acquisition Fees either in cash or by issuing Shares valued for
these purposes at $10.00 per share. Any Shares issued will be subject to
restrictions on transfer. If the issuance of Shares to pay an Acquisition
Fee would result in more than 9.8% of the Company's common stock being held
by The Inland Group, Inc., a Delaware corporation, and its Affiliates
including the Business Manager, the Board of Directors may waive the
ownership restrictions set forth in the Articles of Incorporation to permit
the issuance of the additional Shares and the payment of the Acquisition
Fee in that instance. Any waiver by the Board of Directors shall, as a
consequence, reduce the aggregate number of Shares of the Company's common
stock that may be held by individuals and entities other than the Business
Manager. If the Board of Directors does not waive the ownership
restrictions, the Company shall pay any excess fee in cash. This fee
terminates if the Company acquires the Business Manager.
(c) An incentive fee equal to fifteen percent (15.0%) of the Net
Sales Proceeds; provided that in no event shall the Company be obligated to
pay an incentive fee unless and until all of its Stockholders have first
received a ten percent (10.0%) cumulative, non-compounded return on, plus
return of, their Invested Capital. This fee terminates if the Company
acquires the Business Manager.
9. EXPENSES.
(a) In addition to the compensation paid to the Business Manager
pursuant to SECTION 8 or SECTION 10 hereof, and subject to the limits
herein, the Company shall reimburse the Business Manager, the Sponsor and
its Affiliates for all expenses paid or incurred by the Business Manager,
the Sponsor or its Affiliates to provide certain services and licenses
hereunder, including all direct expenses and the costs of salaries and
benefits of persons employed by the Business Manager, the Sponsor and its
Affiliates and performing services for the Company.
(b) Direct expenses that the Company shall reimburse pursuant to
Section 9(a) hereof include, but are not limited to:
(i) any Offering Expenses;
10
(ii) Acquisition Expenses incurred in connection with
selecting and acquiring Real Estate Assets;
(iii) the actual cost of goods and services purchased for
and used by the Company and obtained from entities not affiliated
with the Business Manager;
(iv) interest and other costs for borrowed money, including
points and other similar fees;
(v) taxes and assessments on income or Real Property and
taxes;
(vi) premiums and other associated fees for insurance
policies including director and officer liability insurance;
(vii) expenses of managing and operating Real Estate Assets
owned by the Company, whether payable to an Affiliate of the Company
or a non-affiliated Person;
(viii) all fees and expenses paid to members of the Board of
Directors and the fees and costs of any meetings of the Board of
Directors or Stockholders;
(ix) expenses associated with listing or with issuing
Shares and Securities, including Selling Commissions, advertising
expenses, taxes, legal and accounting fees, listing and registration
fees and other Organization Expenses and Offering Expenses except
for Selling Commissions or other fees and expenses paid by the
Dealer Manager to any Soliciting Dealer (as those terms are defined
in the Dealer Manager Agreement) pursuant to that certain Dealer
Manager Agreement dated February [__], 2005 by and between the
Company and Inland Securities Corporation;
(x) expenses associated with dividends or distributions
paid in cash or otherwise made or caused to be made by the Company
to Stockholders;
(xi) expenses of organizing the Company and filing,
revising, amending, converting or modifying the Articles of
Incorporation or the bylaws;
(xii) all expenses associated with Stockholder
communications including the cost of preparing, printing and mailing
annual 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 Business Manager receives a
separate fee;
(xiv) audit, accounting and legal fees paid to third
parties;
11
(xv) transfer agent and registrar's fees and charges paid
to third parties; and
(xvi) expenses relating to any offices or office facilities
maintained solely for the benefit of the Company that are separate
and distinct from the Company's executive offices.
(c) The Company shall also reimburse the Business Manager, the
Sponsor and its Affiliates pursuant to Section 9(a) hereof for the salaries
and benefits of persons employed by the Business Manager, the Sponsor or
its Affiliates and performing services for the Company.
(i) In the case of the Sponsor, whose employees also
provide services for other entities sponsored by, or affiliated
with, the Sponsor, the Company shall reimburse only a pro rata
portion of the salary and benefits of these persons based on the
amount of time spent by that person on matters for the Company
compared to the time spent by that same person on all matters
including the Company's matters.
(ii) Except as otherwise agreed in writing by the Company
or the Business Manager, the Company shall also reimburse Affiliates
of the Sponsor for the salaries and benefits of persons employed by
these Affiliates. The salary and benefit costs for each Affiliate
shall be determined by multiplying (A) the number of hours spent by
all employees of the Affiliate in providing services for the Company
by (B) that Affiliate's "hourly billing rate." For these purposes,
the "hourly billing rate" will approximate the hourly cost to the
Affiliate to provide services to the Company based on:
(1) the average amount of all salaries and bonuses paid to
the employees of the Affiliate; and
(2) an allocation for overhead including employee
benefits, rent, materials, fees, taxes, and other
operating expenses incurred by the Affiliate in
operating its business except for direct expenses
reimbursed by the Company pursuant to SECTION 9(b)
hereof.
(d) The Business Manager shall prepare a statement documenting
the expenses paid or incurred by the Business Manager, the Sponsor and its
Affiliates for the Company on a quarterly basis. The Company shall
reimburse the Business Manager, the Sponsor and its Affiliates for these
expenses within forty-five (45) days after the end of each calendar
quarter.
(e) The Business Manager shall direct its employees, and shall
cause the Sponsor and its Affiliates to direct their employees, who perform
services for the Company to keep time sheets or other appropriate billing
records and receipts in connection with any reimbursement of expenses made
by the Company pursuant to this SECTION 9. All time sheets or other
appropriate billing records or receipts shall be made available to the
Company upon reasonable request to the Business Manager.
12
10. COMPENSATION FOR ADDITIONAL SERVICES, CERTAIN LIMITATIONS.
(a) The Company and the Business Manager will separately
negotiate and agree on the fees for any additional services that the
Company asks the Business Manager or its Affiliates to render in addition
to those set forth in SECTION 2 hereof. Any additional fees or
reimbursements to be paid by the Company in connection with the additional
services must be fair and reasonable and shall be approved by a majority of
the Board of Directors, including a majority of the Independent Directors.
(b) In extraordinary circumstances fully justified to the
official or agency administering the appropriate state securities laws, the
Business Manager and its Affiliates may provide other goods and services to
the Company if all of the following criteria are met:
(i) the goods or services must be necessary to the prudent
operation of the Company;
(ii) the compensation, price or fee must be equal to the
lesser of ninety percent (90.0%) of the compensation, price or fee
the Company would be required to pay to independent, non-affiliated
third parties who are rendering comparable services or selling or
leasing comparable goods on competitive terms in the same geographic
location, or ninety percent (90.0%) of the compensation, price or
fee charged by the Business Manager or its Affiliates for rendering
comparable services or selling or leasing comparable goods on
competitive terms; and
(iii) if at least ninety-five percent (95.0%) of gross
revenues attributable to the business of rendering such services or
selling or leasing such goods are derived from persons other than
Affiliates, the compensation, price or fee charged by an
unaffiliated person who is rendering comparable services or selling
or leasing comparable goods must be on competitive terms in the same
geographic location. Extraordinary circumstances shall be presumed
to exist only when there is an emergency situation requiring
immediate action by the Business Manager or its Affiliates and the
goods or services are not immediately available from unaffiliated
parties. Services that may be performed in extraordinary
circumstances include emergency maintenance of Company properties,
janitorial and other related services due to strikes or lockouts,
emergency tenant evictions and repair services that require
immediate action, as well as operating and releasing properties with
respect to which the leases are in default or have been terminated.
(c) Permitted reimbursements shall include salaries and related
salary expenses for nonsupervisory services that could be performed
directly for the Company by independent, non-affiliated third parties such
as legal, accounting, transfer agent, data processing and duplication. The
Business Manager believes that the employees of the Business Manager,
the Sponsor and its Affiliates who may perform services for the Company for
which reimbursement is allowed, will have the experience and educational
13
background, in their respective fields of expertise, appropriate for the
performance of any such services.
11. STATEMENTS. The Business Manager shall furnish to the Company, not
later than the tenth (10th) day of each calendar quarter, beginning with the
second calendar quarter of the term of this Agreement, a statement computing any
Management Fee, Acquisition Fee or incentive fee payable hereunder. The Business
Manager shall also furnish to the Company, not later than the thirtieth (30th)
day following the end of each Fiscal Year, a statement computing the fees
payable to the Business Manager, the Sponsor or its Affiliates for the
just completed Fiscal Year; provided that any compensation payable hereunder
shall be subject to adjustments in accordance with, and upon completion of,
the annual audit of the Company's financial statements.
12. BUSINESS COMBINATION.
(a) BUSINESS COMBINATIONS. The Company shall consider becoming a
self-administered REIT once the Company's assets and income are, in the
view of the Board of Directors, of sufficient size such that internalizing
the management functions performed by the Business Manager and the Property
Manager is in the best interests of the Stockholders.
If the Board of Directors should make this determination in the
future, the Company shall pay one-half of the costs, and the Business
Manager and the Property Manager shall pay the other half, of an
investment banking firm. This firm shall jointly advise the Company and
the Sponsor on the value of the Business Manager and the Property Manager.
After the investment banking firm completes its analyses, the Company
shall require it to prepare a written report and make a formal
presentation to the Board of Directors.
Following the presentation by the investment banking firm, the Board
of Directors shall form a special committee comprised entirely of
Independent Directors to consider a possible business combination with the
Business Manager and the Property Manager. The Board of Directors shall,
subject to applicable law, delegate all of its decision-making power and
authority to the special committee with respect to these matters. The
special committee also shall be authorized to retain its own financial
advisors and legal counsel to, among other things, negotiate with
representatives of the Business Manager and the Property Manager regarding
a possible business combination.
(b) CONDITIONS TO COMPLETION OF BUSINESS COMBINATION. Before the
Company may complete any business combination with either the Business
Manager or the Property Manager in accordance with this SECTION 12, the
following two conditions shall be satisfied:
(i) the special committee formed in accordance with
SECTION 12(a) hereof receives an opinion from a recognized
investment banking firm, separate and distinct from the firm jointly
retained to provide a valuation analysis in accordance with SECTION
12(a) hereof, concluding that the consideration to be paid
14
to acquire the Business Manager or the Property Manager, as the case
may be, is fair to the Stockholders from a financial point of view;
and
(ii) the holders of a majority of the votes cast at a
meeting of the Stockholders called for such purpose (if a quorum is
present at the meeting) approves the acquisition; provided that, for
these purposes only, any shares held by The Inland Group, Inc., the
Sponsor or any of their Affiliates will be counted for purposes of
determining the presence of quorum but will not, however, initially
constitute a vote cast for purposes of determining the number of
votes necessary to approve the acquisition. If the proposal receives
the necessary votes to approve the acquisition, all shares held by
The Inland Group, Inc., the Sponsor or any of their Affiliates may
then be voted in favor of the transaction.
13. REIMBURSEMENT BY BUSINESS MANAGER. The Business Manager shall be
obligated to reimburse the Company in the following circumstances:
(a) On or before the fifteenth (15th) day after the completion of
the annual audit of the Company's financial statements for each Fiscal
Year, the Business Manager shall reimburse the Company for the amounts, if
any by which the Total Operating Expenses (including the Management Fee
and other fees payable hereunder) of the Company for the Fiscal Year just
ended exceeded the greater of:
(i) two percent (2.0%) of the total of the Average
Invested Assets for the just ended Fiscal Year; or
(ii) twenty-five percent (25.0%) of the Net Income for the
just ended Fiscal Year;
provided, however, that the Business Manager may satisfy any obligation
under this SECTION 13(a) by reducing the amount to be paid the Business
Manager under SECTION 8 or SECTION 10 hereunder until the Business Manager
has satisfied its obligations under this SECTION 13(a); provided, further,
that the Board of Directors, including a majority of the Independent
Directors of the Company, may reduce the amount due under this SECTION
13(a) upon a finding that the increased expenses were caused by unusual or
nonrecurring factors.
(b) If the aggregate of all Organization Expenses exceeds fifteen
percent (15.0%) of the Gross Offering Proceeds or the aggregate of all
Offering Expenses (excluding any Selling Commissions, the Marketing
Contribution and the Due Diligence Expense Allowance) exceed four and
one-half percent (4.5%) of the Gross Offering Proceeds, the Business
Manager or its Affiliates shall reimburse the Company for, or pay directly,
any excess Organization Expenses or Offering Expenses incurred by the
Company above the greater of these limits.
14. OTHER ACTIVITIES OF THE BUSINESS MANAGER. Nothing contained herein
shall prevent the Business Manager or an Affiliate of the Business Manager from
engaging in any other business or activity including rendering services or
advising on real estate investment opportunities to any other person or entity.
Directors, officers, employees and agents of the
15
Business Manager or of Affiliates of the Business Manager may serve as
directors, trustees, officers, employees or agents of the Company, but shall
receive no compensation (other than reimbursement for expenses) from the Company
for this service.
15. TERM; TERMINATION OF AGREEMENT. This Agreement shall have an initial
term of three years and, thereafter, will continue in force for successive one
year renewals with the mutual consent of the parties including an affirmative
vote of a majority of the Independent Directors. Each extension shall be
executed in writing by both parties hereto prior to the expiration of this
Agreement or of any extension thereof.
Notwithstanding any other provision of the Agreement to the contrary, this
Agreement may be terminated at the mutual consent of the parties. The Company
may terminate this Agreement upon a vote of a majority of the Independent
Directors by providing no less than sixty (60) days' written notice to the
Business Manager. In the event of the termination of the Agreement, the Business
Manager will cooperate with the Company and take all reasonable steps requested
to assist the Board of Directors in making an orderly transition of the
functions performed hereunder by the Business Manager.
This Agreement shall also terminate upon the closing of a business
combination between the Company and the Business Manager as described in SECTION
12 or as otherwise provided in SECTION 17 hereof.
If this Agreement is terminated pursuant to this SECTION 15, the parties
shall have no liability or obligation to each other including any obligations
imposed by SECTION 2(a) hereof, except as provided in SECTION 18.
16. ASSIGNMENTS. The Business Manager may not assign this Agreement
except to a successor organization that acquires substantially all of its
property and carries on the affairs of the Business Manager; provided that
following the assignment, the persons who controlled the operations of the
Business Manager immediately prior thereto, control the operations of the
successor organization, including the performance of duties under this
Agreement; however, if at any time subsequent to the assignment such persons
cease to control the operations of the successor organization, the Company may
thereupon terminate this Agreement. This Agreement shall not be assignable by
the Company without the consent of the Business Manager, except to a
corporation, trust or other organization that is a successor to the Company. Any
assignment of this Agreement shall bind the assignee hereunder in the same
manner as the assignor is bound hereunder.
17. DEFAULT, BANKRUPTCY, ETC. At the sole option of the Company, this
Agreement shall be terminated immediately upon written notice of termination
from the Board of Directors to the Business Manager if any of the following
events occurs:
(a) the Business Manager violates any provisions of this
Agreement and after notice of such violation shall not cure such default
within thirty (30) days; or
(b) a court of competent jurisdiction enters a decree or order
for relief in respect of the Business Manager in any involuntary case under
the applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or appoints a receiver
16
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Business Manager or for any substantial part of its
property or orders the winding up or liquidation of the Business Manager's
affairs; or
(c) the Business Manager commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary
case under any such law, or consents to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Business Manager or for any
substantial part of its property, or makes any general assignment for the
benefit of creditors, or fails generally to pay its debts, as they become
due.
The Business Manager agrees that if any of the events specified in
subsections (b) and (c) of this SECTION 17 occur, it will give written notice
thereof to the Company within seven (7) days after the occurrence of such event.
18. ACTION UPON TERMINATION. The Business Manager shall not be
entitled to compensation after the date of termination of this Agreement for
further services hereunder, but shall be paid all compensation accruing to the
date of termination. Upon termination of this Agreement, the Business Manager
shall:
(a) pay over to the Company all moneys collected and held for the
account of the Company pursuant to this Agreement, after deducting any
accrued compensation and reimbursement for expenses to which the Business
Manager is entitled;
(b) deliver to the Board of Directors a full accounting,
including a statement showing all payments collected by the Business
Manager and a statement of all money held by the Business Manager, covering
the period following the date of the last accounting furnished to the Board
of Directors;
(c) deliver to the Board of Directors all property and documents
of the Company then in the custody of the Business Manager; and
(d) cooperate with the Company and take all reasonable steps
requested by the Company to assist the Board of Directors in making an
orderly transition of the functions performed by the Business Manager.
19. TRADENAME AND MARKS. Concurrent with executing this Agreement, the
Company will enter into an agreement granting the Company the right, subject to
the terms and conditions of license agreement, to use the "Inland" name and
marks.
20. AMENDMENTS. This Agreement shall not be amended, changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by both parties hereto, or their respective successors or assigns, or
otherwise provided herein.
21. SUCCESSORS AND ASSIGNS. This Agreement shall bind any successors or
assigns of the parties hereto as herein provided.
17
22. GOVERNING LAW. The provisions of this Agreement shall be governed,
construed and interpreted in accordance with the internal laws of the State of
Illinois without regard to its conflicts of law principles.
23. LIABILITY AND INDEMNIFICATION.
(a) The Company shall indemnify the Business Manager and its
officers, directors, employees and agents (individually an "Indemnitee",
collectively the "Indemnitees") to the same extent as the Company may
indemnify its officers, directors, employees and agents under its Articles
of Incorporation and bylaws so long as:
(i) the Indemnitee has determined, in good faith, that the
course of conduct that caused the loss, liability or expense was in
the best interests of the Company;
(ii) the Indemnitee was acting on behalf of, or performing
services for, the Company;
(iii) the liability or loss was not the result of gross
negligence or willful misconduct on the part of the Indemnitee; and
(iv) any amounts payable to the Indemnitee are paid only
out of the Company's assets and not from any personal assets of any
Stockholder.
(b) The Company shall not indemnify any person or entity for
losses, liabilities or expenses arising from, or out of, an alleged
violation of federal or state securities laws by any party seeking
indemnity 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 person or entity;
(ii) the claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the particular
person or entity; or
(iii) a court of competent jurisdiction approves a
settlement of the claims and finds that indemnification of the
settlement and related costs should be made and the court
considering the request has been advised of the position of the
Securities and Exchange Commission and the published opinions of any
state securities regulatory authority in which securities of the
Company were offered and sold with respect to the availability or
propriety of indemnification for securities law violations.
(c) The Company shall advance amounts to persons entitled to
indemnification hereunder for legal and other expenses and costs incurred
as a result of any legal action for which indemnification is being sought
only if all of the following conditions are satisfied:
18
(i) the legal action relates to acts or omissions with
respect to the performance of duties or services by the Indemnitee
for or on behalf of the Company;
(ii) the legal action is initiated by a third party and a
court of competent jurisdiction specifically approves the advance;
and
(iii) the Indemnitee receiving the advances undertakes to
repay any monies advanced by the Company, together with the
applicable legal rate of interest thereon, in any case(s) in which a
court of competent jurisdiction finds that the party is not entitled
to be indemnified.
24. 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 accepted by the party to
whom it is given and shall be given by being delivered at the following
addresses of the parties hereto:
IF TO THE COMPANY: Inland American Real Estate Trust, Inc.
0000 Xxxxxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
IF TO THE BUSINESS MANAGER: Inland American Business Manager & Advisor Inc.
0000 Xxxxxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
Attention: Xx. Xxxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this SECTION 24.
25. CONFLICTS OF INTEREST AND FIDUCIARY DUTIES TO THE COMPANY AND TO THE
COMPANY'S STOCKHOLDERS. The Company and the Business Manager recognize that
their relationship is subject to various conflicts of interest such as set forth
in the Prospectus. The Business Manager, on behalf of itself and its Affiliates,
acknowledges that the Business Manager and its Affiliates have fiduciary duties
to the Company and to the Stockholders. The Business Manager, on behalf of
itself and its Affiliates, agrees, on the one hand, that the Business Manager
and its Affiliates will endeavor to balance the interests of the Company with
the interests of the Business Manager and its Affiliates in making any
determination where a conflict of interest exists between the Company and the
Business Manager or its Affiliates. The Company, on the other hand, agrees that
any such fiduciary duties will be qualified by, and defined in part, by the
Property Acquisition Agreement of even date herewith entered into between the
Company and Acquisition Co.
19
26. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY BLANK]
20
IN WITNESS WHEREOF, the undersigned have executed this Business Management
Agreement as of the date first above written.
COMPANY: BUSINESS MANAGER:
INLAND AMERICAN REAL ESTATE TRUST, INLAND AMERICAN BUSINESS MANAGER &
INC. ADVISOR INC.
By: ----------------------------- By: ------------------------------------
Name: ----------------------------- Name: ------------------------------------
Its: ----------------------------- Its: ------------------------------------
