Z
EXHIBIT 10.2
FORM OF
ADVISORY AGREEMENT
ADVISORY AGREEMENT
This ADVISORY AGREEMENT (this "Agreement") is made as of _______________,
1998 between Inland Retail Real Estate Trust, Inc., a Maryland corporation (the
"Company"), and Inland Retail Real Estate Advisory Services, Inc., an Illinois
corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Company intends to qualify as a "real estate investment trust"
(a "REIT') as defined in Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to make investments of the type permitted
to qualified REITs under the Code and not inconsistent with the Articles of
Incorporation of the Company, as the same may be amended from time to time (the
"Articles of Incorporation"), and the By-Laws of the Company, as the same may be
amended from time to time; and
WHEREAS, the Company desires to avail itself of the experience, sources of
information, advice and assistance of 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 of Directors of the Company (the
"Board of Directors"), as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such services,
subject to the supervision of the Board of Directors, on the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
meanings set forth below:
(a) "Acquisition Expenses" means expenses related to the Company's
selection, evaluation and acquisition of, and investment in, properties,
whether or not acquired or made, including but not limited to legal fees
and expenses, travel and communications expenses, cost of appraisals and
surveys, non-refundable option payments on property not acquired,
accounting fees and expenses, computer use related expenses, architectural
and engineering reports, environmental and asbestos audits, title insurance
and escrow fees, loan fees or points or any fee of a similar nature,
however designated, and personnel and miscellaneous expenses related to the
selection and acquisition of properties. Acquisition Expenses will accrue
and be paid on Properties purchased with the Gross Offering Proceeds,
proceeds of Shares sold via the Company's Distribution Reinvestment Program
and proceeds received from the issuance and exercise of the Soliciting
Dealer Warrants issued by the Company in connection with the Offering, as
well as on the entire purchase price of all Properties including any
acquisition financing related thereto.
(b) "Advisor Asset Management Fee" means an amount equal to 1% of the
Average Invested Assets.
(c) "Affiliate" means, with respect to any other 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 the
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.
(d) "Affiliated Directors" means those Directors of the Company who
are affiliated with the Company or its Affiliates.
(e) "Average Invested Assets" means, for any period, the average of
the aggregate Book Value of the assets of the Company invested, directly or
indirectly, in equity interests and in loans secured by real estate, before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month
during such period.
(f) "Board of Directors" means the board of directors of the Company.
(g) "Book Value" of an asset means the value of such asset on the
books of the Company, before allowance for depreciation or amortization.
(h) "Company Fixed Assets" means the real estate, together with the
buildings, leasehold interests, improvements, equipment, furniture,
fixtures and personal property associated therewith, used by the Company in
the conduct of its business.
(i) "Competitive Real Estate Commission" means the real estate or
brokerage commission paid for the purchase or sale of a Property which is
reasonable, customary and competitive in light of the size, type and
location of such Property.
(j) "Contract Price for the Property" means the amount actually paid
or allocated to the purchase, development, construction or improvement of a
Property exclusive of Acquisition Expenses.
(k) "Cumulative Return" means a cumulative, non-compounded return,
equal to 7% per annum on Invested Capital commencing upon acceptance of the
investor's subscription.
(l) "Current Return" means a non-cumulative, non-compounded return,
equal to 7% per annum on Invested Capital.
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(m) "Fiscal Year" means any period for which any income tax return is
submitted by the Company to the Internal Revenue Service and which is
treated by the Internal Revenue Service as a reporting period.
(n) "Gross Dollars Invested in Properties" means the amount actually
paid or allocated to the purchase, development, construction or improvement
of Properties acquired by the Company.
(o) "Gross Offering Proceeds" means the total proceeds from the sale
of the 50,000,000 Shares offered on "best efforts" basis during the public
offering period before deductions for Organization and Offering Expenses.
For purposes of calculating Gross Offering Proceeds, the purchase price for
all Shares, including those for which volume discounts apply, shall be
deemed to be $10 per Share. Unless specifically included, Gross Offering
Proceeds does not include the total proceeds from the sale of up to
4,000,000 Shares under the Company's Distribution Reinvestment Program
during the public offering period, the purchase price for which shall be
$9.50 per Share; nor the total proceeds from the issuance and exercise of
the Soliciting Dealer Warrants.
(p) "Gross Revenues From Properties" means all cash receipts derived
from the operation of Company Fixed Assets.
(q) "Incentive Advisory Fee" means an amount equal to 15% of the net
proceeds from the sale of a Property after the Stockholders have first
received: (i) their Cumulative Return; and (ii) a return of their Invested
Capital.
(r) "Independent Directors" means the Directors of the Company who:
(i) are not affiliated, directly or indirectly, with the Company or the
Advisor, 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 Advisor or any of their Affiliates; (ii) do
not serve as a director or trustee for more than two other REITs organized
by the Company or the Advisor or advised by the Advisor; and (iii) perform
no other services for the Company, except as Directors. For this purpose,
an indirect relationship shall include circumstances in which a member of
the immediate family of a Director has one of the foregoing relationships
with the Advisor or the Company or any of their Affiliates. For purposes
of determining whether or not the business or professional relationship is
material, the aggregate gross revenue derived by the prospective
Independent Director from the Company, the Sponsor and the Advisor and
their Affiliates shall be deemed material PER SE if it exceeds five percent
of the prospective Independent Director's: (i) annual gross revenue,
derived from all sources, during either of the last two years; or (ii) net
worth, on a fair market value basis.
(s) "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.
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(t) "IREAI" means Inland Real Estate Acquisitions, Inc.
(u) "IREAS" means Inland Real Estate Advisory Services, Inc.
(v) "IREC" means Inland Real Estate Corporation, a REIT.
(w) "IREIC" means Inland Real Estate Investment Corporation, which is
a wholly-owned subsidiary of The Inland Group, Inc. The Advisor is a
wholly owned subsidiary of IREIC. IREIC is the Sponsor of the Company and
of IREC.
(x) "Management Agent" means an entity which provides property
rental, leasing, operation and management services to the Company. The
Management Agent is Inland Southeast Property Management Corp., an
Affiliate of the Advisor, or anyone which succeeds it in such capacity.
(y) "Net Income" means, for any period, total revenues applicable to
such period, less the expenses applicable to such period other than
additions to or allowances for reserves for depreciation, amortization or
bad debts or other similar non-cash reserves; provided, however, that Net
Income shall not include the gain from the sale of the Company's assets.
(z) "Offering" means the offering of Shares of the Company pursuant
to the Prospectus.
(aa) "Organization and Offering Expenses" means all those expenses
incurred by and to be paid from the assets of the Company in connection
with and in preparing the Company for registration and subsequently
offering and distributing Shares to the public, including, but not limited
to, total underwriting and brokerage discounts and commissions (including
fees and expenses of underwriters and their accountants and 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, 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.
(bb) "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.
(cc) "Primary Geographical Area of Investment" of the Company means
the states east of the Mississippi River in the United States.
(dd) "Property" or "Properties" means any, or all, respectively, of
the real property and improvements thereon owned or to be owned by the
Company, directly or indirectly.
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(ee) "Property Disposition Fee" means a real estate disposition fee,
payable (under certain conditions) to the Advisor and its Affiliates upon
the sale of the Company's Property in an amount equal to the lesser of:
(i) 3% of the contracted for sales price of the Property; or (ii) 50% of
the commission paid to third parties which is reasonable, customary and
competitive in light of the size, type and location of such Property.
(ff) "Property Management Fee" means any fee paid to an Affiliate or
third party as compensation for management of the Company's Properties.
The Property Management Fee shall be equal to not more than 90% of the fee
which would be payable to an unrelated party providing such services, which
fee shall initially be 4.5% of the gross revenues from the Properties.
(gg) "Prospectus" means the final prospectus of the Company in
connection with the initial registration of Shares filed with the
Securities and Exchange Commission on Form S-11, as amended and
supplemented.
(hh) "Real Property" means improved and unimproved land, improvements,
furniture and fixtures located on or used in connection with, land and any
interest in any of the foregoing, including an interest in air and
subterranean or mineral rights.
(ii) "Retail Center" means real estate primarily improved for use as
retail establishments, principally a multi-tenant Neighborhood Center or
Community Center (but also including a Regional Center or single-user
retail facilities) or improved with other commercial facilities which
provide goods or services. The terms "Neighborhood Center," "Community
Center," "Regional Center" and "Super Regional Center" shall have the
meanings ascribed to them in the Prospectus.
(jj) "Shares" means the shares of common stock, par value $0.01 per
share, of the Company, and "Share" means one of those Shares.
(kk) "Sponsor" means IREIC.
(ll) "Stockholders" means holders of Shares.
(mm) "Total Operating Expenses" means the aggregate expenses of every
character paid or incurred by the Company as determined under generally
accepted accounting principles, including Advisor Asset Management Fees,
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 taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of the
Shares;
(ii) interest payments;
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(iii) taxes;
(iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves;
(v) the Incentive Advisory Fee payable to the Advisor; and
(vi) Acquisition Expenses, real estate commissions on resale
of Real Property and other expenses connected with the acquisition,
disposition and ownership of real estate interests, mortgage loans or
other property (such as the costs of foreclosure, insurance premiums,
legal services, maintenance, repair and improvement of Real Property).
Any capitalized terms in this Agreement which are not defined in this
Agreement, but which are defined in the Prospectus, shall have the meanings
ascribed to them in the Prospectus.
2. DUTIES OF ADVISOR. The Advisor 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. In general, the Advisor shall inform the Board of
Directors of factors which come to its attention which would 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 Advisor
shall use its best efforts to:
(a) Present to the Company a continuing and suitable real estate
investment program and opportunities to make investments in Real Properties
consistent with the investment policies of the Company and the investment
program adopted by the Board of Directors and in effect at the time and
furnish the Company with advice with respect to the making, acquisition,
holding and disposition of investments and commitments therefor. In
presenting investment opportunities hereunder, the Advisor shall comply
with, and be subject to, the provisions of that certain Property
Acquisition Service Agreement, dated ____________, 1998, among Inland Real
Estate Acquisitions, Inc. ("IREAI"), the Advisor, the Company, Inland Real
Estate Advisory Services, Inc. ("IREAS") and Inland Real Estate Corporation
("IREC") (the "Property Acquisition Service Agreement"), as the same may be
amended from time to time. To the extent possible, the resolution of
conflicting investment opportunities between the Company, IREC and other
investment entities advised or managed by the Advisor and its Affiliates
will, as a general rule, be resolved by giving priority to the geographical
location of the prospective investment opportunity (the "Proposed
Property"). Subject to the exception described below, the Property
Acquisition Service Agreement grants the Company the first opportunity
to purchase any Proposed Property in the Company's Primary Geographical
Area of Investment which is placed under contract by IREAI, the Advisor
or its Affiliates, provided the Company is able to close the purchase of
the Proposed Property within 60 days. Similarly, IREC is granted the
first opportunity to purchase any Proposed
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Property in its primary geographic area of investment (a 400 mile radius
of the headquarters in Oak Brook, Illinois, of The Inland Group, Inc.)
placed under contract by IREAI, IREAS or its Affiliates, provided it is
able to close the purchase of the Proposed Property within 60 days. In
the event the Proposed Property is located in both the Company's and
IREC's primary geographic area of investment and both have funds available
to make the purchase, the Proposed Property will first be offered to IREC.
If IREC does not purchase the Proposed Property, it will then be offered
to the Company.
The Property Acquisition Service Agreement also provides that if
(i) the Proposed Property is outside the primary geographical area of
investment of both the Company and IREC, (ii) the Company, IREC and any
other real estate investment program sponsored by IREIC have funds
available to make the purchase and (iii) the Proposed Property meets each
of their respective acquisition criteria, then the Proposed Property
will (x) first be offered to the IREC, (y) if IREC does not purchase the
Proposed Property, it will then be offered to the Company, and (z) if the
Company does not purchase the Proposed Property, it will then be offered to
such other real estate investment program sponsored by IREIC.
Other factors which may be considered in connection with evaluating
the suitability of the Proposed Property for investment include: (i) the
effect of the acquisition on the diversification of each entity's
portfolio; (ii) the amount of funds available for investment; (iii) cash
flow; and (iv) the estimated income tax effects of the purchase and
subsequent disposition. The Independent Directors of the Company must, by
a majority vote, approve all actions by the Advisor or its Affiliates which
present potential conflicts with the Company.
(b) Manage the Company's day-to-day investment operations, subject to
the final paragraph of this Section 2, to effect the investment program
adopted by the Board of Directors and perform or supervise the performance
of such other administrative functions necessary in connection with the
management of the Company as may be agreed upon by the Advisor and the
Company;
(c) Serve as the Company's investment advisor, subject to the final
paragraph of this Section 2, in connection with policy decisions to be made
by the Board of Directors and, as requested, furnish reports to the Board
of Directors and provide research, economic and statistical data in
connection with the Company's investments and investment policies;
(d) On behalf of the Company, 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 with, retain and
supervise services
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performed by such parties in connection with investments which have been
or may be acquired or disposed of by the Company;
(e) Cooperate with the Management Agent in connection with property
management services and other activities relating to the Company's assets
as the Advisor shall deem appropriate in the particular circumstances,
subject to the requirement that the Advisor or the Management Agent, 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;
(f) 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;
(g) 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, but in no event in such a way that the Advisor shall be acting as
a broker, dealer, underwriter or investment advisor in securities of or for
the Company;
(h) 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;
(i) Upon request of the Board of Directors, and subject to the final
paragraph of this Section 2, invest and reinvest any money of the Company;
(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 Advisor;
(l) Advise the Company of the operating results of the Company
properties, to cause the Manager to prepare on a timely basis, and to
review, for such properties operating budgets, maintenance and improvement
schedules, one, three and five year projections of operating results and
such other reports as may be appropriate;
(m) As requested by the Company, make reports to the Company of its
performance of the foregoing services and furnish advice and
recommendations with respect to other aspects of the business of the
Company;
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(n) 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;
(o) Undertake and perform all services or other activities necessary
and proper to carry out the investment objectives of the Company; and
(p) Undertake communications with Stockholders in accordance with
applicable law and the Articles of Incorporation, provided, however, that
Affiliates of the Advisor have no obligations to the Company other than as
expressly stated herein, and the Advisor and its Affiliates have no
obligations to present to the Company any specific investment opportunity
except as described in the Prospectus.
In providing advice and services as provided in subparagraphs (a) through (p)
above of this Section 2, the Advisor shall not (i) engage in any activity which
would require it to be registered as an "Investment Advisor," as that term is
defined in the Investment Advisors Act of 1940 OR in any state securities law or
(ii) cause the Company to make such investments as would cause the Company to
become an "Investment Company," as that term is defined in the Investment
Company Act of 1940.
3. NO PARTNERSHIP OR JOINT VENTURE. The Company and the Advisor are not,
and shall not be deemed to be, partners or joint venturers with each other.
4. RECORDS. The Advisor shall maintain appropriate books of account and
records relating to services performed hereunder, which shall be accessible for
inspection by the Company at any time during ordinary business hours.
5. REIT QUALIFICATIONS. Notwithstanding any other provision of this
Agreement to the contrary, the Advisor shall refrain from any action which, in
its reasonable judgment or in any judgment of the Board of Directors of which
the Advisor has written notice, would adversely affect the qualification of the
Company as a REIT under the Code or which would violate any law, rule or
regulation of any governmental body or agency having jurisdiction over the
Company or its securities, or which would otherwise not be permitted by the
Articles of Incorporation. If any such action is ordered by the Board of
Directors, the Advisor shall promptly notify the Board of Directors of the
Advisor's judgment that such action would adversely affect such status or
violate any such 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.
6. BANK ACCOUNTS. At the direction of the Board of Directors, the
Advisor may establish and maintain bank accounts in the name of the Company, and
may 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 Advisor. The Advisor shall from time to time, as the Company may
require, render appropriate accountings of such collections, deposits and
disbursements to the Board of Directors and to the auditors of the Company.
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7. FIDELITY BOND. The Advisor shall not be required to obtain or
maintain a fidelity bond in connection with the performance of its services
hereunder.
8. INFORMATION FURNISHED ADVISOR. The Board of Directors will keep the
Advisor informed in writing concerning the investment and financing policies of
the Company. The Board of Directors shall notify the Advisor promptly in
writing of its intention to make any investments or to sell or dispose of any
existing investments. The Company shall furnish the Advisor 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 Advisor may reasonably request.
9. COMPENSATION. The Advisor and its Affiliates shall be paid for
services rendered by the Advisor under this Agreement as follows:
(a) Acquisition Expenses, for the expenses attendant to Property
acquisitions, in an aggregate amount not in excess of 0.5% of (i) the Gross
Offering Proceeds, (ii) the gross proceeds from the sale of up to 4,000,000
Shares pursuant to the Company's Distribution Reinvestment Program, and
(iii) the gross proceeds from the issuance and exercise of the Soliciting
Dealer Warrants, PROVIDED THAT the Acquisition Expense respecting any
specific Property acquired by the Company shall not exceed 6% of the gross
purchase price of that Property;
(b) An Advisor Asset Management Fee of not more than 1% of the
Average Invested Assets. This fee will be payable quarterly in an amount
equal to one-fourth of 1% of the Average Invested Assets of the Company as
of the last day of the immediately preceding quarter. For any year in
which the Company qualifies as a REIT, the Advisor may be required to
reimburse the Company certain sums as described in Section 14;
(c) Reimbursement for the cost to the Advisor and its Affiliates for:
(i) the cost to the Advisor or its Affiliates of goods and services used
for and by the Company and obtained from unaffiliated parties; and
(ii) administrative services related thereto. "Administrative Services"
include ministerial services such as typing, record keeping, preparation
and dissemination of Company reports, preparation and maintenance of
records regarding Stockholders, record keeping and administration of the
Company's Distribution Reinvestment and Share Repurchase Programs,
preparation and dissemination of responses to Stockholder inquiries and
other communications with Stockholders and any other record keeping
required for Company purposes. Such reimbursements are subject to
limitations imposed by Sections 10(b) and (c) hereof;
(d) An Incentive Advisory Fee equal to 15% of the remaining proceeds
from the sale of Real Properties after the Stockholders have first
received: (i) their Cumulative Return; and (ii) the return of their
Invested Capital. At such time as the business of the Advisor is acquired
by or consolidated into the Company pursuant to Section 12 hereof, the
Incentive Advisory Fee shall also terminate;
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(e) A Property Disposition Fee, payable upon the sale of a Real
Property equal to the lesser of: (i) 3% of the contracted for sales price
of the Real Property or (ii) 50% of the commission paid to third parties
which is reasonable, customary and competitive in light of the size, type
and location of such property ("Competitive Real Estate Commission"). The
amount paid to the Advisor, when added to the sums paid to unaffiliated
parties, shall not exceed the lesser of the Competitive Real Estate
Commission or an amount equal to 6% of the contracted for sales price.
Payment of such Property Disposition Fee shall be made only if the Advisor
provides a substantial amount of services in connection with the sale of
the particular parcel(s) of Real Property; and
(f) The compensation and reimbursements paid by the Company to the
Advisor and its Affiliates shall be approved by a majority of the Directors
(including a majority of the Independent Directors), as being fair and
reasonable to the Company and not less favorable to the Company than would
be available from an unaffiliated source.
10. COMPENSATION FOR ADDITIONAL SERVICES, CERTAIN LIMITATIONS.
(a) If the Company shall request the Advisor or its Affiliates to
render services for the Company other than those required to be rendered by
the Advisor hereunder, such additional services, if performed, will be
compensated separately on terms to be agreed upon between such party and
the Company from time to time in accordance with this Section. The rate of
compensation for such services and any reimbursements to be paid by the
Company to the Advisor and its Affiliates shall be approved by a majority
of the Board of Directors, including a majority of the Independent
Directors, as being fair and reasonable to the Company and not less
favorable to the Company than would be available from an unaffiliated
source.
(b) In extraordinary circumstances fully justified to the official or
agency administering the appropriate state securities laws, the Advisor 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 90% of the compensation, price
or fee the Company would be required to pay to independent parties who are
rendering comparable services or selling or leasing comparable goods on
competitive terms in the same geographic location, or 90% of the
compensation, price or fee charged by the Advisor or its Affiliates for
rendering comparable services or selling or leasing comparable goods on
competitive terms; and (iii) if at least 95% 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
only when there is an emergency situation requiring immediate action by the
Advisor or its Affiliates and
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the goods or services are not immediately available from unaffiliated
parties. Services which may be performed in such extraordinary
circumstances include emergency maintenance of Company properties,
janitorial and other related services due to strikes or lock-outs,
emergency tenant evictions and repair services which require immediate
action, as well as operating and re-leasing 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 non-supervisory services which could be performed
directly for the Company by independent parties such as legal, accounting,
transfer agent, data processing and duplication.
The Advisor believes that the employees of the Advisor and its Affiliates
who may perform services for the Company for which reimbursement is allowed
pursuant to Sections 10(b) or 10(c), will have the experience and educational
background, in their respective fields of expertise, appropriate for the
performance of any such services.
11. STATEMENTS. The Advisor shall furnish to the Company not later than
the 10th day of each calendar quarter, beginning with the second calendar
quarter of the term of this Agreement, a statement showing the computation of
any Advisor Asset Management Fee payable to it during such quarter under
Section 9 hereof. The Advisor shall furnish to the Company not later than the
30th day following the end of each Fiscal Year, a statement showing a
computation of: (i) the Incentive Advisory Fee, if any, payable in respect of
such Fiscal Year under Section 9 hereof; and (ii) the fees or other compensation
payable to the Advisor or an Affiliate of the Advisor with respect to such
Fiscal Year under Sections 9 and 10 hereof. The final settlement or
compensation payable under Sections 9 and 10 hereof for each Fiscal Year shall
be subject to adjustments in accordance with, and upon completion of, the annual
audit of the Company's financial statements.
12. BUSINESS COMBINATION OF THE COMPANY AND THE ADVISOR. The Company
shall have the option at any time after three years from the initial date of
effectiveness of the initial final Prospectus, upon prior written notice,
during the term of this Agreement without any consent of the Advisor or its
Board of Directors or shareholders to cause the business conducted by the
Advisor (including all of its assets) to be acquired by or consolidated into
the Company. In such event, the Advisor and/or its respective shareholders
will receive in connection with such an acquisition and in exchange for
terminating this Agreement and the release or waiver of all fees payable
under the provisions of this Agreement until its stated termination, but not
paid, a determinable number of Shares. The Company will be obligated to pay
any fees accrued under this Agreement for services rendered through the
closing of such acquisition.
The number of Shares to be issued by the Company to the Advisor shall be
determined as follows. The Company shall first send notice (the "Election
Notice") to the Advisor of its election to proceed with such a transaction.
Next, the net income of the Advisor, for the six month period immediately
preceding the month in which the Election Notice is delivered, as determined
by an independent audit conducted in accordance with generally accepted
auditing standards, shall be annualized. The Advisor shall bear the cost of
any such audit. Such amount shall then be multiplied by ninety percent (90%)
and then divided by the "Funds from Operations per Weighted Average Share" of
the Company. "Funds from Operations per Weighted Average Share" shall be
equal to the annualized Funds from Operations (I.E., four times the Funds
from Operations for the quarter immediately preceding the delivery of the
Election Notice) per weighted average Share for the Company for such quarter,
all based upon the quarterly report of the Company delivered to Stockholders
for such quarter. The resulting quotient shall constitute the number of
Shares to be issued by the Company to the Advisor or its shareholders, with
delivery thereof and the closing of the transaction to occur within 90 days
of delivery of the Election Notice. Any such transaction will occur, if at
all, only if the Board obtains a fairness opinion from a recognized financial
advisor or institution providing valuation services to the effect that the
consideration to be paid therefor is fair, from a financial point of view, to
the Stockholders of the Company.
The Company shall not terminate this Agreement solely for the purpose of
avoiding such a business combination, such as in anticipation of the listing
of the Shares on a national stock exchange or their inclusion in a national
market system.
13. EXPENSES OF THE COMPANY. The Company shall pay all of its expenses
and shall reimburse the Advisor for its expenses as provided in Sections 9
and 10 hereof and,
12
without limiting the generality of the foregoing, it is agreed that the
following expenses of the Company shall be paid by the Company:
(a) To the extent the Advisor is not expressly required to pay such
expenses pursuant to this Agreement, salaries and other employment expenses
of the personnel employed by the Company, Directors' fees and expenses
incurred in attending Directors meetings, travel and other expenses
incurred by Directors, officers and employees of the Company and the cost
of Directors' liability insurance;
(b) The cost of borrowed moneys;
(c) All taxes applicable to the Company;
(d) Legal, accounting, auditing, underwriting, brokerage, listing,
registration and other expenses and taxes incurred in connection with the
organization or termination of the Company, the issuance, distribution,
transfer, registration and stock exchange or quotation system listing of
the Company's securities;
(e) Fees and expenses paid to advisors, independent contractors, the
Management Agent, consultants, managers and other agents employed directly
by the Company or by the Advisor at the Company's request for the account
of the Company or by Affiliates of the Advisor, as provided above;
(f) Expenses in connection with the acquisition, disposition, leasing
and ownership of investments, including to the extent not paid by others,
but not limited to, legal fees and other expenses of professional services,
maintenance, repair and improvement of property and brokerage and sales
commissions, expenses of maintaining and managing Real Property equity
interests (including the fees and charges of the Management Agent);
(g) All insurance costs incurred in connection with the Company;
(h) Expenses connected with payments of dividends or interest or
distributions in cash or in any form made or caused to be made by the Board
of Directors to holders of securities of the Company;
(i) All expenses connected with communications to holders of
securities of the Company and the other bookkeeping and clerical work
necessary in maintaining relations with holders of securities and in
complying with the continuous reporting and other requirements of
governmental bodies or agencies, including the cost of printing and mailing
certificates for securities and proxy solicitation materials and reports to
holders of the Company's securities;
(j) Transfer agent and registrar's fees and charges; and
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(k) Expenses relating to any office or office facilities maintained
by the Company separate from the office or offices of the Advisor.
14. REIMBURSEMENT BY ADVISOR. The Advisor shall be obligated to reimburse
the Company in the following circumstances:
(a) On or before the 15th day after the completion of the annual
audit of the Company's financial statements for each Fiscal Year, the
Advisor will reimburse the Company for the amounts, if any, (i) by which
the Total Operating Expenses (including the Advisor Asset Management Fee)
of the Company for such Fiscal Year exceeded the greater of: (a) 2% of the
total of the Company's Average Invested Assets for such Fiscal Year; or
(b) 25% of the Net Income for such Fiscal Year; PLUS (ii) equal to any
deficit between the total amount of distributions to Stockholders for such
Fiscal Year and the Current Return; provided, however, that the Company may
instead permit such reimbursements to be effected by a reduction in the
amount of the monthly payments of compensation under Section 9(a) hereof
during the balance of the Fiscal Year next following the Fiscal Year with
respect to which such reimbursement is to be made; and provided, further,
that only so much of such excess specified in clause (i) of this paragraph
(a) need be reimbursed as the Board of Directors, including a majority of
the Independent Directors of the Company, shall determine should
justifiably be reimbursed in light of such unanticipated, unusual or
non-recurring factors as may have occurred within 60 days after the end of
an fiscal quarter of the Company for which Total Operating Expenses (for
the 12 months then ended) exceeded 2% of Average Invested Assets or 25% of
Net Income, whichever is greater, and there shall be sent to the
Stockholders a written disclosure of such fact, together with an
explanation of the factors the Independent Directors considered in arriving
at the conclusion that such higher Total Operating Expenses were justified.
(b) If the aggregate of all Organization and Offering Expenses
attendant to the Offering (including Selling Commissions and the Marketing
Contribution and Due Diligence Expense Allowance) should exceed 15% of the
Gross Offering Proceeds OR if the aggregate of all Organization and
Offering Expenses (excluding any Selling Commissions) should exceed 5.5% of
the Gross Offering Proceeds, the Advisor shall pay directly and/or cause
its Affiliates to pay directly any such excess Organization and Offering
Expenses incurred by the Company and the Company will have no liability for
such excess expenses.
15. OTHER ACTIVITIES OF THE ADVISOR. Nothing herein contained shall
prevent the Advisor or an Affiliate of the Advisor from engaging in any other
business or activity including the rendering of services and investment advice
with respect to real estate investment opportunities to any other person or
entity and the management of other investments (including the investments of the
Advisor and its Affiliates).
Directors, officers, employees and agents of the Advisor or of Affiliates
of the Advisor may serve as Directors, trustees, officers, employees or agents
of the Company, but shall
14
receive no compensation (other than reimbursement for expenses) from the
Company for such service.
16. TERM; TERMINATION OF AGREEMENT. This Agreement shall have an initial
term of one year 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 before the expiration of this Agreement or of any
extension thereof.
Notwithstanding any other provision of the Agreement to the contrary,
either the Company or the Advisor may terminate this Agreement, or any extension
hereof, or the parties by mutual consent or a majority of the Independent
Directors may do so, in each case upon 60 days written notice without cause or
penalty. In the event of the termination of the Agreement, the Advisor will
cooperate with the Company and take all reasonable steps requested to assist the
Board of Directors in making an orderly transition of the advisory function.
This Agreement shall terminate upon the consummation of a business
combination involving the Advisor and the Company as described in Section 12.
If this Agreement is terminated pursuant to this Section, such termination
shall be without any further liability or obligation of either party to the
other, except as provided in Section 19.
If this Agreement is terminated for any reason other than a business
combination involving the Advisor and the Company as described in Section 12,
all obligations of the Advisor and its Affiliates to offer Property to the
Company for purchase, as described in Section 2(a), shall also terminate.
17. ASSIGNMENTS. The Company may terminate this Agreement in the event of
its assignment by the Advisor except an assignment to a successor organization
which acquires substantially all of the property and carries on the affairs of
the Advisor, provided that following such assignment the persons who controlled
the operations of the Advisor immediately prior thereto all control the
operations of the successor organization, including the performance of its
duties under this Agreement; however, if at any time subsequent to such
assignment such persons shall 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
Advisor, except in the case of assignment by the Company to a corporation, trust
or other organization which 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.
18. DEFAULT, BANKRUPTCY, ETC. At the option solely of the Company, this
Agreement shall be terminated immediately upon written notice of termination
from the Board of Directors to the Advisor if any of the following events
occurs:
15
(a) The Advisor violates any provisions of this Agreement and after
notice of such violation shall not cure such default within 30 days; or
(b) A court of competent jurisdiction enters a decree or order for
relief in respect of the Advisor in any involuntary case under the
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appoints a receiver liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Advisor or for any substantial
part of its property or orders the winding up or liquidation of the
Advisor's affairs; or
(c) The Advisor 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 Advisor 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 Advisor agrees that if any of the events specified in subsections (b)
and (c) of this Section 18 occur, it will give written notice thereof to the
Company within seven days after the occurrence of such event.
19. ACTION UPON TERMINATION. The Advisor 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. Subject to the provisions of Section 12, the Advisor shall
forthwith upon a termination caused by factors other than the listing for
trading of the Shares on a national stock exchange or market:
(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 its expenses to which it is then
entitled;
(b) Deliver to the Board of 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 Board of Directors;
(c) Deliver to the Board of Directors all property and documents of
the Company then in the custody of the Advisor; 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 Advisory function.
20. CHANGE OF NAME. The Company recognizes that the name and xxxx
"Inland" have established prestige and goodwill and have acquired valuable
secondary meanings in the real estate and related industries and in the mind of
the public. The Company desires to
16
associate itself with and benefit from the "Inland" name, and in
consideration of the grant by the Advisor and its Affiliates of a perpetual
royalty-free license to the Company (which license has been authorized),
subject to the conditions set forth in this Section 20, to use the name and
xxxx "Inland" in connection with a real estate investment trust throughout
the United States, its territories and possessions, the Company agrees that:
(a) The value of the "Inland" name cannot be reasonably and
adequately compensated for in damages in action at law and unauthorized use
of the "Inland" name will cause irreparable injury and damage to the
Advisor and its Affiliates. The Advisor or its Affiliates shall be
entitled as a matter of right to injunctive relief to prevent the use of
the "Inland" name by the Company in the event of the circumstances
described in Subsection (d) below.
(b) The Company agrees to use the "Inland" name and xxxx in a manner
which will protect the right of the Advisor and its Affiliates therein and
such use shall be as licensee for the account and benefit of the Advisor
and its Affiliates. To the extent any rights in the name or xxxx "Inland"
are deemed to accrue to the Company, the Company hereby assigns any and all
such rights to the Advisor and its Affiliates at such time as they may be
deemed to accrue.
(c) Nothing contained in this Agreement shall be construed an
assignment or grant to the Company of any right, title or interest in or to
the name or xxxx "Inland" or any other trademarks, trade names or related
service marks, insignias, logos, designs and color schemes, it being
understood that all rights relating thereto are reserved by the Advisor and
its Affiliates, except for the license hereunder to the Company of the
rights to use the name or xxxx as specifically and expressly provided
herein. The Company agrees to cooperate fully and in good faith with the
Advisor and its Affiliates, at the expense of the Advisor and its
Affiliates, in securing and preserving the rights of the Advisor and its
Affiliates in and to the name and xxxx "Inland" and to assist the Advisor
and its Affiliates in executing and causing to be recorded such documents
as may be necessary or desirable to evidence, protect and implement the
rights of the Advisor and its Affiliates pursuant to this Agreement.
(d) At such time as the Advisor is no longer providing services to
the Company pursuant to this Agreement for some reason other than the
consummation of a business combination described in Section 12, the Board
of Directors will upon the request of the Advisor and its Affiliates,
promptly cause the name of the Company to be changed in perpetuity to a
name which does not include any reference to the name "Inland" or any
successor thereof. Without limiting the generality of the foregoing, upon
termination of this Agreement by either party for some reason other than
the consummation of a business combination described in Section 12, the
Board of Directors will promptly cause the name of the Company to be
changed in perpetuity to a name which does not include any references to
the name "Inland" or any successor thereof.
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21. 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.
22. SUCCESSORS AND ASSIGNS. This Agreement shall bind any successors or
assigns of the parties hereto as herein provided.
23. GOVERNING LAW. The provisions of this Agreement shall be governed,
construed and interpreted in accordance with the laws of the State of Illinois
as at the time in effect.
24. LIABILITY AND INDEMNIFICATION.
(a) The Company shall, to the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, and, without
limiting the generality of the foregoing, in accordance with Section 2-418
of the General Corporation Law of Maryland, indemnify and pay or reimburse
reasonable expenses to the Advisor and its Affiliates, provided, that:
(i) the Advisor or other party seeking indemnification has 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 other person
seeking indemnification was acting on behalf of or performing services on
the part of the Company; (iii) such liability or loss was not the result of
negligence or misconduct on the part of the indemnified party; and
(iv) such indemnification or agreement to be held harmless is recoverable
only out of the assets of the Company and not from the Stockholders
thereof.
(b) The Company shall not indemnify the Advisor or its Affiliates for
losses, liabilities 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; 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 may 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: (i) the legal
action relates to acts or omissions with respect to the performance of
duties or services by the indemnified part for or on behalf of the Company;
(ii) the legal action is initiated by a third party and a court of
competent
18
jurisdiction specifically approves such advancement; and (iii) the
indemnified party receiving such advances undertakes to repay the
advanced funds to the Company, together with the applicable legal rate
of interest thereon, in any case(s) in which such party is found not to
be entitled to indemnification.
25. 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:
The Company and/or the Board of Directors:
Inland Retail Real Estate Trust, Inc.
0000 Xxxxxxxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxx, Vice President
The Advisor:
Inland Retail Real Estate Advisory Services, Inc.
0000 Xxxxxxxxxxx Xxxx
Xxx Xxxxx, Xxxxxxxx 00000
Attention: President
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 25.
26. CONFLICTS OF INTEREST AND FIDUCIARY DUTIES TO THE COMPANY AND TO THE
COMPANY'S STOCKHOLDERS. The Company and the Advisor recognize that their
relationship is subject to various conflicts of interest as set forth in the
Prospectus. The Advisor, on behalf of itself and its Affiliates, acknowledges
that the Advisor and its Affiliates have fiduciary duties to the Company and to
the Company's Stockholders. The Advisor, on behalf of itself and its
Affiliates, represents and agrees (i) that the Advisor and its Affiliates will
endeavor to balance the interests of the Company with the interests of the
Advisor and its Affiliates in making any determination where a conflict of
interest exists between the Company and the Advisor or its Affiliates; and
(ii) that the actions and decisions of the Advisor and its Affiliates under this
Agreement (including but not limited to actions and decisions in connection with
the purchase of Properties for the Company) will be made in the manner most
favorable to the Company
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and to the Company's Stockholders, so as not to breach their respective
fiduciary duties to the Company and to the Company's Stockholders.
27. 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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
COMPANY:
Inland Retail Real Estate Trust, Inc.
By:
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Title:
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ADVISOR:
Inland Retail Real Estate Advisory Services, Inc.
By:
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Title:
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