Exhibit 10-1
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT, dated as of May __, 1998, by and between
CLARION COMMERCIAL HOLDINGS, INC., a Maryland corporation (the "Company"),
and CLARION CAPITAL, LLC, a New York limited liability company (the
"Manager").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of investing in
commercial mortgage-backed securities, commercial mortgage loans, mezzanine
investments and other real estate related investments and has elected to be
taxed as a real estate investment trust (a "REIT") under the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, the Company desires to retain the Manager to manage the
investments and day-to-day operations of the Company and to perform
administrative services for the Company in the manner and on the terms set
forth herein.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein
shall have the respective meanings assigned to them in the Prospectus, dated
May __, 1998 (the "Prospectus"), of the Company included in the Company's
Registration Statement on Form S-11, as amended No. 333-47887, filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended. In addition, the following terms shall have the meanings assigned
to them:
"CLARION Agreement" means that certain agreement, dated as of May ___,
1998, between the Manager and CLARION.
"Clarion Partners" means Clarion Partners, LLC, a New York limited
liability company.
"Closing Date" means the date of closing, dated as of May ____, 1998, of
the Company's initial public offering of common stock.
"Common Stock" means the Class A common stock, par value $.001 per share
of the Company.
"Governing Instruments" means the Company's articles of incorporation
and bylaws, as each may be amended, supplemented and/or restated from time
to time.
"Incentive Fee" shall have the meaning set forth under Section 6(a)(2)
hereof.
"Management Fee" shall have the meaning set forth under Section 6(a)(1)
hereof.
"Mortgage Assets" means (i) Mortgage Securities and (ii) Mortgage Loans.
"Mortgage Loans" means mortgage loans secured by first or subordinate
liens on single family residential, multi-family residential, commercial
or other real property.
"Mortgage REIT" means an entity the securities of which are publicly
traded, organized and operated in compliance with the REIT Provisions of
the Code, that invests primarily in Mortgage Assets and follows investment
strategies substantially similar to those employed by the Company.
"Mortgage Securities" means securities representing interests in, or
obligations backed by, pools of Mortgage Loans.
"Non-Competition Payment" means the fair market value of this Agreement
(without giving effect to any termination and assuming it is renewed in
accordance with its terms), determined by a nationally recognized
accounting or investment banking firm experienced in the valuation of
investment advisory agreements. Such valuation shall be conducted by a
nationally recognized accounting or investment banking firm mutually
agreed upon by the parties and the costs of such appraisal shall be borne
equally by the parties. If the parties are unable to agree upon such
firm within 30 days following delivery of the notice of termination, then
each party shall, as soon as reasonably practicable, but in no event more
than 45 days following delivery of the notice of termination, choose a
nationally-recognized accounting or investment banking firm to conduct an
appraisal and such firms shall mutually agree upon a third
nationally-recognized accounting or investment banking firm. In such
event, (i) the fair market value amount shall be deemed to be the average
of the appraisals as conducted by each of the three firms; provided,
however, that if the appraisal by any firm is more than 15% greater or
lesser than such average, such firm's appraisal shall be disregarded and
the fair market value amount shall be deemed to be the average of the
remaining appraisal(s) and (ii) each party shall pay the costs of its
chosen accounting or investment banking firm. Any appraisal conducted
hereunder shall be performed no later than 45 days following selection of
the accounting or investment banking firm. The Non-Competition Payment
payable by the Company shall be paid within 30 days following receipt of
the final appraisal obtained hereunder.
"REIT Provisions of the Code" shall mean Sections 856 through 860 of the
Code, or any successor provisions thereto, and the regulations thereunder.
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"Return on Average Stockholders' Equity" means the result obtained by
dividing the Company's Net Income for a period by its Average
Stockholders' Equity for such period.
"Ten-Year U.S. Treasury Rate" shall mean the arithmetic average of the
weekly yield to maturity for actively traded current coupon U.S. Treasury
fixed interest rate securities (adjusted to constant maturities of ten
years) as published weekly by the Federal Reserve Board in "Federal
Reserve Statistical Release H.15(519)--Selected Interest Rates" or, if
such rate is not published by the Federal Reserve Board, as published by
any Federal Reserve Bank or agency or department of the federal government
selected by the Company.
"Termination Event" shall mean the occurrence of any of the following
events:
(1) the Manager violating any material provision of this
Agreement, and, if after notice of such violation and such violation
is curable, it shall not have cured such violation within 30 days;
provided, however, that in the event the Manager has commenced curing
such violation within such 30-day period and is diligently pursuing
such cure, the Manager shall have up to an additional 60 days to cure
such violation; or
(2) the Manager ceasing to be registered as an investment adviser
under the Advisers Act, if such registration is required as a matter
of law; or
(3) (i) the Manager generally not paying its obligations as such
obligations become due, or admitting in writing its inability to pay
its obligations generally, or making a general assignment for the
benefit of creditors; or (ii) any proceeding being instituted by or
against the Manager seeking to adjudicate it a bankrupt or insolvent,
or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its
obligations under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of any
order for relief or the appointment of a receiver, trustee, custodian
or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it
(but not instituted by it), such proceedings remaining undismissed or
unstayed for a period of sixty days; or (iii) any of the actions
sought in any proceeding described in (ii) above (including an order
for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of
its property) occurring or (iv) the Manager taking any action to
authorize any of the actions set forth above in this subsection; or
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(4) an assignment (as defined in the Advisers Act) of this
Agreement without the approval of the Company; or
(5) the commission by the Manager of fraud, dishonesty, gross
negligence or willful misconduct in connection with this Agreement.
SECTION 2. INVESTMENT MANAGEMENT DUTIES OF THE MANAGER.
(a) Under the ultimate supervision of the Company's Board of Directors
(the "Directors"), the Manager is authorized to invest the assets of the
Company according to the strategies described in the Prospectus and the
strategies and restrictions set forth from time to time by the Directors. In
furtherance of such general grant of authority, the Manager shall have full
discretion and authority, without obtaining the Company's prior approval, to
manage the investment and reinvestment of the assets of the Company in such
manner as the Manager considers appropriate, consistent with the Prospectus
and written instructions of the Directors.
(b) The Manager shall select brokers, dealers, banks and intermediaries
to effect transactions for the Company, and may agree to such commissions,
fees and other charges on behalf of the Company as the Manager shall deem
reasonable under the circumstances taking into account all such factors it
deems relevant. All brokerage commissions and related transaction costs for
transactions on behalf of the Company will be borne by the Company. The
Manager agrees to select brokers and dealers on the basis of obtaining the
best overall terms available, which the Manager shall evaluate based on a
variety of factors, including the ability to achieve prompt and reliable
executions at favorable prices; the operational efficiency with which
transactions are effected; the financial strength, integrity and stability of
the broker, the quality, comprehensiveness and frequency of available
research and related services considered to be of value; and the
competitiveness of commissions and similar charges compared to other brokers
satisfying the Manager's other selection criteria. Research and related
services furnished by brokers to the Manager may be used for the benefit of
clients other than the Company and may include: written information and
analyses concerning specific securities, companies or sectors; market,
financial and economic studies and forecasts, statistics, tax matters and
pricing services; discussions with legal and research personnel; and news,
technical and telecommunications services and equipment utilized in the
investment management process. Subject to seeking the best execution, the
Manager also may consider referrals of potential investors in the Company and
research provided about the Company as factors in the selection of brokers.
The Manager may cause the Company to pay a broker a commission in excess of
that which another broker might have charged for effecting the same
transaction in recognition of the value of the brokerage, research and
related services provided by the broker.
SECTION 3. GENERAL DUTIES OF THE MANAGER. Subject to the supervision
of the Directors, the Manager shall provide services to the Company and will
be
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responsible for the day-to-day operations of the Company and will perform (or
cause to be performed) such services and activities relating to the assets
and operations of the Company as may be appropriate, including, among other
things:
(a) serving as the Company's consultant with respect to
formulation of investment criteria and preparation of policy guidelines
by the Board of Directors;
(b) representing the Company in connection with the purchase of,
and commitment to purchase, assets, the sale of, and commitment to
sell, assets, and the maintenance and administration of its portfolio
of assets;
(c) furnishing reports and statistical and economic research to
the Company regarding the Company's activities and the services
performed for the Company by the Manager;
(d) monitoring and providing to the Board of Directors on an
ongoing basis price information and other data obtained from certain
nationally recognized dealers that maintain markets in assets
identified by the Board of Directors from time to time, and providing
data and advice to the Board of Directors in connection with the
identification of such dealers;
(e) providing executive and administrative personnel, office space
and office services required in rendering services to the Company;
(f) administering the day-to-day operations of the Company and
performing and supervising the performance of such other administrative
functions necessary in the management of the Company as may be agreed
upon by the Manager and the Board of Directors, including the
collection of revenues and the payment of the Company's debts and
obligations, the submission of any required public filings by the
Company and maintenance of appropriate computer systems to perform such
administrative functions;
(g) communicating on behalf of the Company with the holders of any
equity or debt securities of the Company as required to satisfy the
reporting and other requirements of any governmental bodies or agencies
or trading markets and to maintain effective relations with such
holders;
(h) designating originators, servicers, property managers,
developers, asset managers and other servicers with respect to the Real
Estate Investments made by the Company and arranging for the monitoring
and administering of such service providers;
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(i) counseling the Company in connection with policy decisions to
be made by the Board of Directors;
(j) engaging in hedging and financing activities on behalf of the
Company, consistent with the Company's status as a REIT;
(k) counseling the Company regarding the maintenance of its status
as a REIT and monitoring compliance with the various REIT qualification
tests and other rules set out in the Code and Treasury Regulations
thereunder; and
(l) monitoring and supervising CLARION'S performance under the
CLARION Agreement.
SECTION 4. ADDITIONAL ACTIVITIES OF MANAGER. Nothing herein shall
prevent the Manager, any of its Affiliates or any of their employees from
engaging in other businesses or from rendering services of any kind to any
other person or entity, except that the Manager agrees, during the term of
this Agreement, not to provide any of the services described in Section 3 to
any Mortgage REIT, the stock of which is traded on any public securities
exchange, other than the Company.
SECTION 5. INVESTMENTS FOR THE ACCOUNTS OF OTHERS AND ALLOCATION OF
OPPORTUNITIES. Subject to Section 10 hereof, the Company understands that
the Manager, from time to time, will purchase and sell Real Estate
Investments and other securities of the type in which the Company may invest
for Affiliated Funds. The Company understands that when the Manager
determines that it would be appropriate for the Company and one or more
Affiliated Funds to participate in an investment opportunity, the Manager
will seek to execute orders for the Company and for such Affiliated Funds on
a fair and equitable basis. In such situations, the Manager may place orders
for the Company and each Affiliated Fund simultaneously, and if all such
orders are not filled at the same price, the Manager may cause the Company
and each Affiliated Fund to pay or receive the average of the prices at which
the orders were filled for the Company and all Affiliated Funds. If all such
orders cannot be fully executed under prevailing market conditions, the
Manager may allocate the securities traded among the Company and the
Affiliated Funds in a manner which it considers fair and equitable, taking
into account the size of the order placed for the Company and each such
Affiliated Fund, as well as any other factors which it deems relevant.
SECTION 6. COMPENSATION AND EXPENSES.
(a) For services rendered under this Agreement, the Company agrees to
pay to the Manager the following:
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(1) a base management fee (the "Management Fee") payable monthly
at an annual rate of 1.0% of Average Stockholders' Equity;
(2) an incentive fee, payable quarterly (the "Incentive Fee"),
equal to the product of (A) 25% of the dollar amount by which (1)
Adjusted Net Income of the Company per share of common stock of the
Company (based on the weighted average number of shares outstanding)
exceeds (2) an amount equal to (a) the weighted average of the price
per share of the Common Stock at the initial offering and the prices
per share at any secondary offerings of common stock by the Company
multiplied by (b) the Ten-Year U.S. Treasury Rate plus 2.5% per annum
multiplied by (B) the weighted average number of shares of common stock
of the Company outstanding, calculated as a quarterly average over the
prior four quarters; and
(3) in consideration of the Manager's agreement in Section 4, the
Non-Competition Payment, if the Company terminates, or the Directors
fail to approve a continuation of, this Agreement or the Company
engages another person to manage a portion of its assets or manages its
assets internally with personnel other than those previously employed
by the Manager, and, at the time of such action, no Termination Event
has occurred and is continuing.
(b) The Company agrees to pay directly or reimburse the Manager for (i)
all expenses incurred in connection with transactions effected or positions
held on behalf of the Company pursuant to the Manager's exercise of its
duties hereunder (including, without limitation, due diligence costs,
custodial fees, clearing fees, brokerage commissions and related transaction
costs, interest and commitment fees on loans and debit balances and
withholding or transfer taxes); (ii) all fees actually expended by the
Manager under the CLARION Agreement related to the performance of its duties
hereunder; and (iii) out-of-pocket expenses paid or payable to third parties
on behalf of the Company.
(c) The Management Fee and Incentive Fee shall be paid in arrears. The
Management Fee and expenses will be calculated by the Manager as promptly as
practicable after month-end. The Manager's Incentive Fee will be calculated
by the Manager within 45 days after the end of each quarter, commencing with
the end of the fourth quarter of the Company's operating history. Such
calculations shall be promptly delivered to the Company. The Company agrees
to pay all such fees and expenses within 15 days of delivery of such
calculation. In the absence of manifest error, the Manager's calculations of
such amounts shall control.
(d) No Management or Incentive Fee shall accrue or be payable in
respect of any period before the Closing Date. Management Fees for any
partial period shall be pro-rated according to the proportion which such
partial period bears to the full period. The Incentive Fee
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for the first four quarters of the Company's operating history shall be paid
at the end of the fourth such quarter.
SECTION 7. LIMITS OF MANAGER RESPONSIBILITY.
(a) The Company agrees that the Manager shall not be liable to the
Company, its Affiliates or their directors, officers or stockholders for any
losses, damages, expenses or claims occasioned by any act or omission of the
Manager, its directors, officers, stockholders, employees or agents in
connection with the performance of its services hereunder, other than as a
result of its own willful misconduct, gross negligence or reckless disregard
of its duties hereunder, or as otherwise required by applicable law.
(b) The Company agrees to indemnify the Manager, its stockholders,
directors, officers, employees or agents against and hold them harmless from
any and all liabilities, losses, damages, expenses or claims arising out of
any claim asserted or threatened to be asserted by any third party in
connection with the Manager's serving or having served as such pursuant to
this Agreement; provided, however, that the Manager shall not be entitled to
indemnification with respect to any liabilities or losses or damages,
expenses or claims which were found by a court of competent jurisdiction (in
a final judgment from which no appeal may be taken) to have been caused by
its own gross negligence, willful misconduct or reckless disregard of its
duties hereunder. The Company shall advance to the Manager the reasonable
costs and expenses of investigating and/or defending any such claim, subject
to receiving a written undertaking from the Manager to repay any such amounts
advanced to it in the event and to the extent of such determination that the
Manager was not entitled to indemnification hereunder. In the event that the
Manager is or becomes a party to any action or proceeding in respect of which
indemnification may be sought hereunder, the Manager shall promptly notify
the Company thereof. Following such notice, the Company shall be entitled to
participate therein and, to the extent that it may wish, to assume the
defense thereof with counsel reasonably satisfactory to the Manager. After
notice from the Company to the Manager of an election so to assume the
defense thereof, the Company will not be liable to the Manager hereunder for
any legal or other expenses subsequently incurred by the Manager in
connection with the defense thereof, other than reasonable costs of
investigation, unless counsel for the Manager reasonably shall determine that
there is a conflict of interest which requires separate representation of the
parties. The Company shall not be liable hereunder for any settlement of any
action or claim effected without its written consent, which consent shall not
be unreasonably withheld, nor shall the Company enter into any settlement
which shall impose any obligation on the Manager without its written consent.
(c) At any time, the Manager may consult with counsel, accountants and
tax advisers for the Company with respect to any matter arising in connection
with the Manager's
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duties and obligations under this Agreement, and the Manager shall not be
liable for any action taken or omitted by it in good faith in accordance with
the advice of such persons.
SECTION 8. TERM; TERMINATION. This Agreement shall commence on the
Closing Date and shall continue for an initial term expiring on the third
anniversary of the Closing Date. Thereafter, successive extensions, each for
a period not to exceed one year, may be made by Agreement between the Manager
and the Company. This Agreement is terminable by the Company, or upon a vote
of the holders of a majority of the outstanding shares of Common Stock,
without cause at any time upon 60 days' written notice to the Manager. This
Agreement will also terminate automatically in the event of its assignment
(as defined in the Advisers Act), unless the assignment is consented to by
the non-assigning party.
SECTION 9. ACTION UPON TERMINATION. From and after the date of
termination of this Agreement, the Manager shall not be entitled to
compensation for further services hereunder, except pursuant to any separate
written management termination agreement that may be negotiated by the
parties, but shall be paid any compensation accruing through the date of
termination, including the Non-Competition Payment. Upon such termination,
the Manager shall forthwith:
(a) after deducting any accrued compensation and reimbursement for its
expenses to which it is then entitled, pay over to the Company or any
subsidiary of the Company any money collected and held for the account of the
Company or any subsidiary of the Company pursuant to this Agreement;
(b) deliver to the Directors 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 Directors with respect to the Company or any subsidiary of the Company;
(c) pay to the Company all sums set forth on the accounting referenced
in (b) above; and
(d) deliver to the Directors all property and documents of the Company
or any subsidiary of the Company then in the custody of the Manager.
SECTION 10. MANAGER'S EXERCISE OF RIGHT OF FIRST REFUSAL OPTION UNDER
THE CLARION AGREEMENT. Notwithstanding anything to the contrary contained
herein, the Manager agrees that in exercising its right of first refusal
under the CLARION Agreement to acquire from CLARION all commercial debt
investment opportunities identified by CLARION, it shall exercise such rights
solely for the benefit of the Company, and not for the benefit of any
Affiliated Fund, until such time as the Company owns assets having a
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market value in excess of the Purchasing Priority Amount. From and after
such time, the Manager agrees that it shall allocate all investments acquired
from CLARION among the Company and the Affiliated Funds on a fair and
equitable basis. In addition, the Manager will not permit the Affiliated
Funds to sell securities or other assets to, or purchase securities or other
assets from, the Company unless such sale or purchase is made at the fair
market value of such security or asset and is approved by the Independent
Directors.
SECTION 11. NOTICES. Unless expressly provided otherwise herein, any
notices, requests, demands and other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been
duly given, made and received when delivered against receipt or upon actual
receipt of registered or certified mail, postage prepaid, return receipt
requested. The parties may deliver to each other notice by electronically
transmitted facsimile copies provided that such notice is followed within
twenty-four hours by any type of notice otherwise provided for in this
Section. Any notice shall be duly addressed to the parties as follows:
(a) If to the Company:
Clarion Commercial Holdings, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx
with a copy given in the manner prescribed above, to:
Shearman & Sterling
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Real Estate Notices
30144/00005 JLO
(b) If to the Manager
Clarion Capital, LLC
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx
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with a copy given in the manner prescribed above, to:
Shearman & Sterling
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Real Estate Notices
30144/00005 JLO
Either party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this Section for the giving of notice.
SECTION 12. MISCELLANEOUS.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns as provided
herein.
(b) This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any
nature whatsoever with respect to the subject matter hereof. The express
terms hereof control and supersede any course of performance or usage of the
trade inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by an agreement in writing approved by the
Company (including a majority of the Independent Directors) and the Manager.
(c) This Agreement and all questions relating to its validity,
interpretation, performance and enforcement shall be governed by and
construed, interpreted and enforced in accordance with the internal laws of
the State of New York, without giving effect to principles of conflicts of
law.
(d) Neither the failure nor any delay on the part of a party to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of
the same or of any other right, remedy, power or privilege, nor shall any
waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it
is in writing and is signed by the party asserted to have granted such waiver.
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(e) The titles of Sections 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.
(f) This Agreement may be executed in counterparts, each of which when
so executed and delivered shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
(g) The provisions of this Agreement are independent of and separable
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.
(h) 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.
(i) The Company and the Manager are not partners or joint venturers
with each other and nothing herein shall be construed to make them such
partners or joint venturers or impose any liability as such on either of them.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CLARION COMMERCIAL HOLDINGS, INC.
By:
-------------------------------------------
Xxxxxx Xxxxxx:
Chief Executive Officer and President
CLARION CAPITAL, LLC
By:
-------------------------------------------
Xxxxxx Xxxxxx
Chief Executive Officer and President
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