Exhibit 10.5
INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated this 18th day of March, 1998, but effective as of the date
stated in section 10 below, by and between Starwood Financial Trust, a
California business trust (the "Company"), and Starwood Financial Advisors,
L.L.C., a Connecticut limited liability company ("STARWOOD ADVISORS" or the
"INVESTMENT ADVISOR").
1. PURPOSE OF THE COMPANY.
The Company is a business trust organized under the laws of the State of
California to conduct business and to qualify under the Internal Revenue Code of
1986, as amended ("CODE"), as a real estate investment trust ("REIT"). The
principal purpose of the Company is to acquire, hold, own, develop, redevelop,
construct, improve, maintain, operate, manage, sell, lease, rent, transfer,
encumber, mortgage, convey, exchange and otherwise dispose of or deal with a
diversified portfolio (the "Diversified Portfolio") of debt or debtlike
interests in real estate or real estate-related assets, including (i) mortgage
loans, as well as direct and indirect and controlling and noncontrolling equity
investments in real estate and real estate-related assets including through any
entity or direct ownership; (ii) direct or indirect interests in short term,
medium and long-term real estate-related debt securities and mortgage interests,
which may include warrants, equity participations or similar rights incidental
to a debt investment; (iii) purchase money loans with respect to assets sold by
the Company; and (iv) non-performing and sub-performing debt for the purpose of
restructuring the same to performing debt or if such efforts are unsuccessful,
of shortly thereafter obtaining primary management rights over or equity
interests in the underlying assets securing such debt, in each case, subject to
the limitations set forth in the Company's Declaration of Trust, as the same may
be amended from time to time (the "DECLARATION"). The Diversified Portfolio may
include controlling or non-controlling equity ownership positions in any general
category of real estate assets, including without limitation, office,
industrial, mini-storage and residential improvements to land, excluding any
positions prohibited by such Declaration.
2. THE INVESTMENT ADVISOR.
Starwood Advisors and its principals have experience in the investment
management of assets of the type owned and expected to be owned by the Company.
The Company hereby engages the services of Starwood Advisors as the Company's
investment manager.
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3. OBLIGATIONS OF THE INVESTMENT ADVISOR.
As the Investment Advisor, Starwood Advisors will:
a. identify investment opportunities for and advise the Company as to
the acquisition and disposition of investments, all in accordance with the
Company's investment policies;
b. comply, in carrying out its obligations hereunder and its
activities on behalf of the Company, with all directives of the Company's
Board of Trustees or any duly constituted committee or officer of the
Company acting pursuant to authority of the Company's Board of Trustees;
C. report to the Company's Board of Trustees, or to any committee or
officer of the Company acting pursuant to the authority of the Board, at
such times and in such detail as the Board deems appropriate in order to
enable the Company to determine that the investment policies of the Company
are being observed and implemented;
d. subject to the Company's investment policies and any specific
directives concerning such policies from the Company's Board of Trustees,
and subject further to the approval of the Company's Board of Trustees with
respect to each investment or disposition of an investment with an
acquisition cost or disposition value in excess of $10 million (other than
temporary investments of cash in short term investments permitted by the
Company's investment policies or disposition of such short term
investments), effect acquisitions and dispositions for the Company's
account in the Investment Advisor's discretion and to arrange for the
documents representing investments acquired to be delivered to the
Company's custodian or other designee. Any investment or disposition of an
investment with an acquisition cost or disposition value that is $10
million or less (other than such temporary investments) shall be permitted
provided that it is in accordance with the Company's investment policies;
e. on a continuing basis and subject to the overall super-vision of
the Board of Trustees, monitor, manage and, for loans which are originated
by the Investment Advisor, service the Company's Diversified Portfolio,
including, upon approval of the Board of Trustees, the enforcement of
remedies upon default. In the event the Company purchases loans subject to
existing servicing agreements or purchases multi-loan portfolios originated
by third parties which cannot reasonably be serviced by the Investment
Advisor subject to this Agreement, the Investment Advisor shall designate a
third-party servicer for such loans purchased by the Company to be engaged
by the Company and arrange for the monitoring and administering of such
servicer, including negotiating servicing agreements, collecting
information and submitting reports pertaining to such loans;
f. arrange debt financing for the Company, subject to policies
adopted by the Company's Board of Trustees and subject further to the
approval of the Company's Board of Trustees with respect to each financing
in excess of $100 million or, in the case of financings that are recourse
to the Company, each financing in excess of $25 million;
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g. upon request by and in accordance with the directions of the Board
of Trustees, invest or reinvest any cash of the Company; and
h. engage in hedging activities on behalf of the Company consistent
with the Company's qualification as a REIT and in accordance with its
investment policies.
In carrying out its obligations under this Agreement, (i) the Investment
Advisor will comply with the investment policies of the Company as from time to
time established by the Board of Trustees and furnished to the Investment
Advisor, (ii) the Investment Advisor will not act in a manner which is
inconsistent with an express direction of the Board of Trustees, provided that
such direction is not expressly contrary to the specific terms and provisions of
this Agreement, which shall be controlling, and (iii) the Investment Advisor
will not subcontract out primary responsibility for the performance of its
overall responsibilities under this Agreement.
Notwithstanding the foregoing, the Investment Advisor shall not be
responsible for the administration of the Company or for compliance by the
Company with reporting and other regulatory requirements applicable to them.
4. BANK ACCOUNTS; RELEASE OF MONEY OR OTHER PROPERTY HELD IN CUSTODY.
a. At the direction of the Company's Board of Trustees, the
Investment Advisor shall establish and maintain one or more bank accounts
in the name of the Company or any subsidiary of the Company, and shall
collect and deposit into any such account or accounts, and disburse funds
from any such account or accounts, under such terms and conditions as the
Board of Trustees may approve; and the Investment Advisor shall from time
to time render appropriate accountings of such collections and payments to
the Board of Trustees and, upon request by the Company, to the auditors of
the Company. In no event shall the funds in any such Company account be
commingled with the funds of the Investment Advisor or any other person.
b. The Investment Advisor agrees that any money or other property of
the Company or any subsidiary held by the Investment Advisor under this
Agreement shall be held by the Investment Advisor as custodian for the
Company or subsidiary, and the Investment Advisor's records shall be
appropriately marked clearly to reflect the ownership of such money or
other property then held by the Investment Advisor for the account of the
Company or such subsidiary. Upon the receipt by the Investment Advisor of a
written request signed by a duly authorized representative of the Company
requesting the Investment Advisor to release to the Company or any
subsidiary any money or other property then held by the Investment Advisor
for the account of the Company or any subsidiary under this Agreement, the
Investment Advisor shall promptly release such money or other property to
the Company or any subsidiary. The Investment Advisor shall not be liable
to the Company, any subsidiary, the Independent Trustees (as defined
below), or the Company's or a subsidiary's stockholders or partners for any
acts performed or omissions to act by the Company or any subsidiary in
connection with the money or other property released to the Company or any
subsidiary in accordance with this section 4(b). The Company and any
subsidiary shall indemnify the Investment Advisor, its members, managers,
officers, stockholders
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and employees against any and all expenses, losses, damages, liabilities,
demands, charges and claims of any nature whatsoever, which arise in
connection with the Investment Advisor's release of such money or other
property to the Company or any subsidiary in accordance with the terms of
this section 4(b). Indemnification pursuant to this provision shall be in
addition to any right of the Investment Advisor to indemnification under
section 9 of this Agreement. The provisions of this section regarding
indemnification shall survive termination of this Agreement.
5. EXPENSES TO BE PAID BY THE INVESTMENT ADVISOR.
The Investment Advisor will pay the salaries, wages, bonuses and other
employee benefits of the persons in its organization whom the Investment Advisor
may engage to render such services (other than fees paid and reimbursement of
expenses made to independent managers, independent contractors, professionals,
mortgage servicers, consultants, managers, local property managers or agents
employed by or on behalf of the Company including (subject to Section 6 hereof)
such persons or entities which may be affiliates of the Investment Advisor when
acting in any such capacity other than as mortgage servicers, all of which shall
be the responsibility of the Company), including without limitation persons who
may from time to time act as the Company's officers, as well as all occupancy
and equipment costs (office rent, utilities, telephone, and office overhead)
incident to such services. Notwithstanding the foregoing, the Board of Trustees
of the Company may, in its sole discretion, award to such officers or to other
principals or employees or members of the Investment Advisor directly or
indirectly (through awards made to the Investment Advisor) options to acquire
Shares of the Company and other awards, as provided in Section 26 of this
Agreement, none of which awards shall be considered part of their salaries or
other employee benefits for the purpose of this paragraph, provided, however,
that without the prior written approval of the Investment Advisor, no awards
shall be made by the Company directly to officers, principals, employees or
members of the Investment Advisor in such respective capacities.
6. EXPENSES TO BE PAID BY THE COMPANY.
Subject to the annual percentage limitations on Advisory Fees set forth in
Section 4.5 of the Company's Declaration and the corresponding power of the
Independent Trustees to waive such limitations in appropriate circumstances, and
to the following provisions, the Company will pay any expenses incurred by the
Company and shall reimburse the Investment Advisor promptly, against the
Investment Advisor's voucher, for any such expenses paid by the Investment
Advisor for the Company's account. Without limitation, such expenses shall
include all expenses of the Company's organization or any reorganization, and of
any offering and sale by the Company of its shares; expenses of the Company's
operations, except as otherwise provided in paragraph 5 above, such operational
expenses to include enforcement costs and administrative costs of the Company;
the fees and disbursements of the Company's counsel, accountants, consultants,
custodian, transfer agent and registrar; fees of third party servicers retained
pursuant to Section 3.e. hereof-, fees and expenses incurred in producing and
effecting filings with federal and state securities administrators or other
compliance and reporting costs (to the extent the Investment Advisor voluntarily
undertakes to assist the Company with respect thereto); costs of the Company's
periodic reports to and other communications with its shareholders (to the
extent the Investment Advisor voluntarily
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undertakes to assist the Company with respect thereto); fees and expenses of
members of the Company's Board of Trustees (excluding the fees of trustees who
are employees of the Investment Advisor or the Company or their affiliates);
premiums for any insurance or fidelity bond maintained by the Company; and all
transaction costs incident to the pursuit, acquisition, management, financing
and disposition of investment assets by the Company, including, as applicable
and without limitation, due diligence costs, legal, accounting, engineering,
travel and reasonable entertainment, and environmental assessment fees and
expenses. In addition, if the Company for its corporate purposes, uses the
services of attorneys or paraprofessionals on the staff of the Investment
Advisor or its affiliates in lieu of outside counsel, the Company will not be
required to reimburse the Investment Advisor for such services but shall pay for
incidental disbursements to third parties or for travel.
7. RECEIPT OF FEES.
All fees that may be paid to the Investment Advisor by any person in
connection with the making, holding or disposition of any investment in which
the Company participates or proposes to participate shall be paid over or
credited to the Company pro rata to the extent of its participation in such
transaction. The Investment Advisor may, on the other hand, retain for its own
account any fees paid to it by any person for any services rendered to such
person which is not related to the making, holding or disposition of any such
investment, and nothing herein shall be construed to prevent members of the
Investment Advisor and their affiliates from continuing to be entitled to any
fee, equity participations or other benefits from any shareholder of the Company
(nor shall any such member or affiliate have any obligation to rebate any fee,
equity participations or other benefits, as applicable) in connection with
services rendered to such person, to the extent agreed to from time to time by
the Investment Advisor (or such members or affiliates) and such other person. In
addition, any fees paid by third parties for services rendered by attorneys on
the staff of the Investment Advisor in connection with any such investment
transaction shall be treated as transaction costs and shall not be deemed to be
fees paid to the Investment Advisor in connection with any investment
transaction, provided, however, that the Investment Advisor shall not negotiate
for reimbursement of such legal fees in lieu of payment of fees that would have
otherwise been payable to the Company. The Investment Advisor will report to the
Company's Board of Trustees not less often than quarterly all fees received by
the Investment Advisor from any source whatever and whether, in its opinion, any
such fee is one that the Investment Advisor is entitled to retain under the
provisions of this paragraph. In the event that any member of the Board of
Trustees should disagree, the matter shall be conclusively resolved by a
majority of the trustees who are Independent Trustees (as such term shall be
defined in the Declaration (THE "INDEPENDENT TRUSTEES"); provided that for as
long as Starwood Mezzanine Investors, L.P. and Starwood Opportunity Fund IV,
L.P. hold Class "A" Shares of the Company, such term shall be as defined in the
Second Amended and Restated Shareholders Agreement, dated as of March 13, 1998
by and among B Holdings, L.L.C., SAHI Partners, Starwood Mezzanine Investors,
L.P., SOFIIV SMT Holdings, L.L.C., and Starwood Financial Trust.
8. COMPENSATION OF THE INVESTMENT ADVISOR.
As the Investment Advisor's sole and exclusive compensation for its
services to be rendered pursuant to the terms hereof (other than any options or
other awards granted to individual officers, principals, members or employees of
the Investment Advisor pursuant
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to Section 5 above), the Company will, during the term of this Agreement, pay to
the Investment Advisor the following fees, beginning as of the date that is 90
days from the Contribution Date (as hereinafter defined), subject, however, to
the annual percentage limitation on Advisory Fees set forth in Section 4.5 of
the Company's Declaration and the corresponding power of the Independent
Trustees to waive such limitations in appropriate circumstances:
a. Base Management Fee. A quarterly base management fee ("BASE FEE")
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in an amount equal to 0.3125% (1.25% per annum), of the Book Equity Value
(as defined below) of the Company determined as of the last day of each
quarter, but estimated and paid in advance subject to recomputation as
indicated below. For these purposes, "BOOK EQUITY VALUE" shall mean the
excess of the book value of the assets of the Company over all liabilities
of the Company determined in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), except that real estate-related
depreciation and amortization (other than amortization of financing costs
and other prepaid expenses to the extent such costs and prepaid expenses
have previously been booked as an asset of the Company) shall not operate
to reduce the book value of the Company's assets for purposes of
determining Book Equity Value.
For purposes of determining the "Book Equity Value", debt
obligations of the Company, such as convertible debt, which are exchangeable
or convertible into equity securities shall not be considered liabilities of
the Company for any applicable period in which the same are so convertible
or exchangeable and the value of the equity securities into which such debt
obligation is convertible or for which it may be exchanged equals or
exceeds, as of the last day of such period, the outstanding balance
(including accrued interest) of such debt obligation (with the value of any
such equity securities for such applicable period as are traded on an
exchange to be deemed to be the average daily closing price of such equity
securities on such exchange over such applicable period for purposes of
making the value determination contemplated by this sentence). Debt
obligations that are excluded as liabilities of the Company under the
preceding sentence in determining "Book Equity Value" shall be referred to
herein as "DEEMED EQUITY OBLIGATIONS".
In addition to the foregoing, in the event and to the extent non-
cash assets are acquired by the Company or any of its subsidiaries or
affiliates in exchange for equity securities of the Company, then under
those circumstances where "purchase accounting" principles are not
applicable for purposes of determining the Company's "Book Equity Value"
following such contributions, the book value of the assets so contributed
shall be deemed to be increased by the excess, if any, of the fair market
value of the equity securities issued in consideration of such contributions
determined at the time of such acquisitions over the GAAP book equity value
allocable to such assets by the Company immediately following such
contributions. For purposes of the foregoing determination with respect to
the contribution of assets made on the date hereof by "Starwood Mezzanine"
and "SOFI IV" (as such terms are hereinafter defined), the price per share
of the Company shall be deemed to be $2.50.
b. Incentive Fee. A quarterly incentive FEE ("INCENTIVE FEE"), in an
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amount equal to five percent (5%) of the Company's "Adjusted Net Income"
(as
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defined below) during such quarter, but such fee shall be payable only during
those quarters where Adjusted Net Income for such quarter, restated (and
annualized) as an annualized rate of return on the Company's average Book Equity
Value for such quarter, equals or exceeds the Benchmark BB Rate (as defined
below). For these purposes, "ADJUSTED NET INCOME" means the Company's gross
income for the applicable quarter (determined in accordance with GAAP, provided
that any interest payment which is more than 30 days in default shall not be
included until collected) less the Company's expenses for the applicable quarter
(determined in accordance with GAAP and including the Base Fee for such quarter
but not the Incentive Fee for such quarter). In addition, real estate-related
depreciation and amortization (other than amortization of financing costs and
other prepaid expenses to the extent such costs and prepaid expenses have
previously been booked as an asset of the Company) shall not be deducted in
determining Adjusted Net Income. For purposes of determining "Adjusted Net
Income", any interest expenses for an applicable period on Deemed Equity
Obligations shall not be included as an expense and, thus, shall not operate to
reduce the Company's gross income for such applicable period. "BENCHMARK BB
RATE" for a given quarter means the arithmetic average of the various weekly
average annualized rates of return to maturity on current pay "BB" rated
commercial mortgage-backed securities during such quarter by domestic U.S.
issuers. The weekly average annualized rates of return on current pay "BB" rated
commercial mortgage backed securities shall mean the sum of the rate of return
on the 10 year Treasury on the applicable date and the BB spread as reported in
the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ Weekly Mortgage Research Report. During any
quarter where such rate is not published, the Company and the Investment Advisor
shall meet in good faith to agree upon another published report or similar
source.
C. Timing of Fee Payments. The Investment Advisor shall estimate the
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compensation payable under Section 8(a) of this Agreement at the beginning of
each fiscal quarter on or before the tenth day of such quarter. The amount of
any such estimated fees payable for the upcoming quarter shall be offset,
however, against any excess of the prior quarter's estimate over fees actually
earned during the previous quarter (recomputed based on information available as
of the last day of the quarter). If the amount of such excess for the prior
quarter exceeds the amount of estimated fees for the upcoming quarter that can
be offset, such remaining excess shall promptly be returned by the Investment
Advisor to the Company (as any such remaining excess shall be considered an
advance). A copy of the itemized computations made by the Investment Advisor to
calculate its estimated and actual compensation under Section 8(a) shall
promptly be delivered to the Company's Board of Trustees and, upon such
delivery, payment of the balance shown therein shall be due and payable within
15 days after such transmittal to the Board. The Investment Advisor shall
calculate the compensation payable under Section 8(b) of this Agreement within
45 days after the end of each fiscal quarter. A copy of the itemized
computations shall promptly be delivered to the Board of Trustees and, upon such
delivery, payment of the compensation earned under Section 8(b) shall be due and
payable within 15 days after such transmittal to the Board. At the Investment
Advisor's option, the fee computation schedule under sections 8(a) and 8(b) can
also be combined. Payments of the applicable portion of the fees referenced
above shall be pro rated based on the number of days elapsed during any partial
month.
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d. Investment Advisor Loans. If loans are made to the Company or its
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affiliates by the Investment Advisor or an affiliate of the Investment
Advisor, the maximum amount of interest that may be charged by such
affiliate shall be the prime rate publicly announced by The Chase Manhattan
Bank from time to time plus 1 % per year. Interest will be computed on the
basis of a 3 60 day year consisting of 12 months of 30 days each.
9. STANDARD OF CARE; INDEMNIFICATION.
To the maximum extent permitted by law, the Investment Advisor assumes no
responsibility under this Agreement other than to render the services called for
hereunder in good faith and shall not be responsible for any action of the Board
of Trustees in following or declining to follow any advice or recommendations of
the Investment Advisor, including as set forth in Section 3(d) of this
Agreement. Neither the Investment Advisor, nor any of its members, managers,
officers, stockholders or employees shall be liable to the Company, any
subsidiary, the Independent Trustees of the Company or the Company's or any
subsidiary's stockholders or partners for any acts or omissions by such party
under or in connection with this Agreement, except for each such party by reason
of its own acts constituting bad faith, willful misconduct, gross negligence or
reckless disregard of its duties. To the extent permitted by law, the Company
shall reimburse, indemnify and hold harmless the Investment Advisor, its
members, managers, officers, stockholders and employees of and from any and all
expenses, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever, (including attorneys' fees) in respect of or arising from any
acts or omissions of the Investment Advisor, its members, managers, officers,
stockholders and employees, made in good faith in the performance of the
Investment Advisor's duties under this Agreement and not constituting bad faith,
willful misconduct, gross negligence or reckless disregard of its duties. The
provisions of this section shall survive termination of the Agreement, and in
the event of any conflict between the provisions of this Section 9 and the
provisions of Section 5.1 of the Declaration, the provisions of this Section 9
shall control.
10. TERM OF THE AGREEMENT.
a. The initial term of this Agreement shall commence on the first
date that either of Starwood Mezzanine Investors, L.P. ("STARWOOD
MEZZANINE") or Starwood Opportunity Fund IV, L.P. ("SOFI IV") contributes,
either directly or indirectly, mortgage interests (other than the Warwick
Notes) to the Company (the "CONTRIBUTION DATE"), and shall end on the third
anniversary of the Contribution Date. This Agreement shall automatically
renew for an additional one year term upon the expiration of the initial
term and each additional successive one year term unless (i) a Termination
Event (as defined below) has occurred and is continuing on the expiration
of the then current term or (ii) all of the Company's assets have been
distributed upon liquidation of the Company; provided, however, that if
assets of the Company are transferred to any subsidiary or subsidiaries of
the Company other than in connection with a liquidation of the Company, the
terms of this Agreement shall continue to apply with respect to such
assets. The foregoing notwithstanding, this Agreement may be terminated at
any time, without the payment of a penalty, on 60 days' notice to the
Investment Advisor, if the decision to terminate is based on the occurrence
of a Termination Event (as defined below) or has been made by two-thirds of
the votes that may be cast by all holders of shares entitled to vote,
including in the calculation for this purpose, all
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the Company's voting shares of any class and regardless of any affiliation the
holders thereof may have with the Investment Advisor. This Agreement will
terminate automatically in the event of any assignment by the Investment Advisor
that is not in accordance with section 15 below. The Investment Advisor may also
terminate this Agreement on 60 days' notice to the Company.
b. Termination Events. At the option of the Company, this Agreement shall
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be and become terminated upon 60 days' written notice of termination from the
Company's Board of Trustees to the Investment Advisor, without payment of any
termination fee, if any of the FOLLOWING EVENTS ("TERMINATION EVENTS") shall
occur:
(1) if the Investment Advisor shall violate any provision of this
Agreement and after notice of such violation, shall not cure such violation
within 90 days;
(2) there is entered an order for relief or similar decree or order
with respect to the Investment Advisor by a court having competent
jurisdiction in an involuntary case under the federal bankruptcy laws as now
or hereafter constituted or under any applicable federal or state
bankruptcy, insolvency or other similar laws; or the Investment Advisor (i)
ceases, or admits in writing its inability to pay its debts as they become
due and payable, or makes a general assignment for the benefit of, or enters
into any composition or arrangement with, creditors; (ii) applies for, or
consents (by admission of material allegations of a petition or otherwise)
to the appointment of a receiver, trustee, assignee, custodian, liquidator
or sequestrator (or other similar official) of the Investment Advisor or of
any substantial part of its properties or assets, or authorizes such an
application or consent, or proceedings seeking such appointment are
commenced without such authorization, consent or application against the
Investment Advisor and continue undismissed for 90 days; (iii) authorizes or
files a voluntary petition in bankruptcy, or applies for or consents (by
admission of material allegations of a petition or otherwise) to the
application of any bankruptcy, reorganization, arrangement, readjustment of
debt, insolvency, dissolution, liquidation or other similar law of any
jurisdiction, or authorizes such application or consent, or proceedings to
such end are instituted against the Investment Advisor without such
authorization, application or consent and are approved as properly
instituted and remain undismissed for 90 days or result in adjudication of
bankruptcy or insolvency; or (iv) permits or suffers all or any substantial
part of its properties or assets to be sequestered or attached by court
order and the order remains undismissed for 90 days; or
(3) unless cured by the Investment Advisor within the period set forth
in subsection I 0(b)(1) above, a material expense, loss, damage or liability
is incurred by the Company resulting primarily from an act or omission of
the Investment Advisor that constituted bad faith, willful misconduct, gross
negligence or reckless disregard of its duties.
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If any of the events specified in this Section I 0(b) of this Agreement
shall occur, the Investment Advisor shall give prompt written notice
thereof to the Board of Trustees upon the happening of such event.
11. PROTECTION OF INVESTMENTS
The Investment Advisor shall use its efforts, in cooperation with the legal
counsel to the Company, as deemed appropriate in the Investment Advisor's
reasonable discretion, (a) to verify title to or procure title insurance in
respect of any property in which the Company makes or proposes to make any
investment; (b) to verify that any mortgage securing any investment of the
Company shall be a valid lien upon the mortgaged property according to its
terms; and (c) to carry on the policies from time to time specified by the Board
of Trustees with regard to the protection of the Company's investments.
12. REIT QUALIFICATION
Anything else in this Agreement to the contrary notwithstanding, the
Investment Advisor shall not take any action (including, without limitation,
furnishing or rendering services to tenants of property or managing real
property), which action, in its judgment made in good faith, or in the judgment
of the Board of Trustees of the Company as transmitted to the Investment Advisor
in writing, would (a) cause personal liability to attach to the holders of the
Shares (as hereinafter defined) by reason of the ownership thereof, or (b)
adversely affect the status of the Company as a real estate investment trust as
defined in the Code or which would make the Company subject to the Investment
Company Act of 1940, as amended, if not in the best interests of the Company's
shareholders as determined by the Board of Trustees, or (c) violate any law,
rule, regulation or statement of policy of any government body or agency having
jurisdiction over the Company or over its securities, or (d) otherwise not be
permitted by the Declaration of the Company, except if such action shall be
ordered by the Board of Trustees of the Company, in which event the Investment
Advisor shall promptly notify the Board of Trustees of the Investment Advisor's
judgment that such action would adversely affect such status or violate any such
law, rule, regulation or statement or the Declaration, as amended, and shall
refrain from taking such action pending further clarification of such
instructions from the Board of Trustees. In addition, the Investment Advisor
shall take such affirmative steps which, in its good faith judgment, or in the
judgment of the Board of Trustees as transmitted to the Investment Advisor in
writing, would prevent or cure any action described in (a), (b), (c) or (d)
above.
13. ADDITIONAL ACTIVITIES OF THE INVESTMENT ADVISOR
a. During the term of this Agreement, the principal business purpose
of the Investment Advisor shall be to arrange for the investment by the
Company in accordance with the Company's investment policies in high-
yielding, real estate-related debt investments and to perform the other
duties and obligations of the Investment Advisor on behalf of the Company
set forth in this Agreement.
b. Members, managers, officers, employees and agents of the
Investment Advisor or affiliates of the Investment Advisor may serve as
trustees, directors, officers, employees, agents, nominees or signatories
for the Company or
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any subsidiary, to the extent permitted by their respective governing
instruments, as from time to time amended, or by any resolutions duly
adopted by the Board of Trustees pursuant to the Company's Declaration. When
executing documents or otherwise acting in such capacities for the Company
or a related entity, such persons shall use their respective titles in the
Company or a related entity. Notwithstanding the foregoing, no person
serving in a dual role for the Investment Advisor and the Company may
execute consents or authorizations on behalf of the Company to or in favor
of the Investment Advisor.
C. Except as provided in the next succeeding paragraph, nothing
herein shall be construed as imposing any restrictions on the investment or
other business activities of the Investment Advisor or of any parties who
may hold direct or indirect ownership interests in the Investment Advisor
from time to time, including, but without limitation, Starwood, and, without
limitation, Starwood and such other parties may invest in any type of real
estate or other investments for their own account or for the account of
others without any obligation to present such opportunities to the
Investment Advisor or the Company. In addition, except as provided in the
next succeeding paragraph, nothing herein shall restrict any members,
managers, officers, employees or agents of the Investment Advisor from
serving as directors, trustees, officers, employees, agents, nominees or
signatories for any person.
During the "Exclusivity Period" (as hereinafter defined), neither the
Investment Advisor nor any person who is controlled by, who controls or who
is under common control with the Investment Advisor shall form, manage or
advise a new blind pool investment fund, the primary purpose of which is to
invest in debt (a) that is secured by real estate in the United States, (b)
that has current coupon rates in excess of comparable maturity Treasury
spreads plus 400 basis points, and (c) that has maturities longer than four
years, and which debt otherwise has predominantly debt investment
characteristics. As used herein, "Exclusivity Period" means the period
commencing on the date hereof and ending on the earlier of (i) February 27,
2000, or (ii) the date which is six (6) months after the date on which
aggregate proceeds of not less than $400,000,000 have been raised through
one or more public offerings of Shares (as hereinafter defined) after the
Contribution Date (with not less than $320,000,000 of such raised proceeds
constituting issuances of Shares which are not resales of Shares
outstanding at 11: 5 9 p.m. on the Contribution Date).
14. CERTAIN CONFLICTS OF INTEREST; ENFORCEMENT OF THE AGREEMENT.
a. The Company hereby acknowledges that various affiliates of the
Investment Advisor have general partner interests in and other direct or
indirect ownership of, and contractual obligations to, Starwood Mezzanine,
and SOFI IV, each of which will be a shareholder in the Company after the
Contribution Date, and to their respective investors, and that such
affiliates of the Investment Advisor have fiduciary responsibilities to
such investors.
b. Subject to the voting rights set forth in Section 10(a) hereof,
the Independent Trustees of the Company shall make all determinations on
behalf of the Company in respect of the computation of the Advisor's fees.
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15. ASSIGNMENT.
This Agreement shall not be assignable by either party without the consent
of the other; provided, however, that the Investment Advisor shall have the
right to assign its rights and/or obligations in their entirety to an entity
that following such assignment is controlled by, controls or is under common
control with Starwood (or its approved successors), provided that such assignee
assumes all of the duties and responsibilities of the Investment Advisor in
connection therewith.
16. BINDING NATURE OF AGREEMENT; SUCCESSORS AND ASSIGNS.
Subject to section 15 hereof, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns (to the extent permitted) as provided
herein.
17. ENTIRE AGREEMENT.
This Agreement contains the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof, and supersedes all
prior and contemporaneous agreements, understanding, inducements and conditions,
express or implied, oral or written, of any nature whatsoever with respect to
the subject matter hereof. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may not be modified or amended other than by an
agreement in writing approved by the Company (including a majority of the
Independent Trustees acting on behalf of the Company) and by the Investment
Advisor.
18. CONTROLLING LAW.
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 laws of the State of New York, notwithstanding
any New York or other conflict of law provisions to the contrary.
19. INDULGENCES, NOT WAIVERS.
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.
20. TITLES NOT TO AFFECT INTERPRETATION.
The titles of paragraphs and subparagraphs 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.
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21. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
22. USE OF THE ANGELES AND STARWOOD NAMES.
The parties hereto agree that no right or license to use the name of either
party or any affiliate is granted hereby. In the event the parties or one or
more of their affiliates agree to allow the Company to use the "Starwood" name
(or any variant thereof) by separate agreement, in connection with the
activities of the Company, such use will cease immediately upon any termination
of the Investment Advisor under this Agreement and the Company shall take all
actions necessary, including the filing of name change forms in all appropriate
jurisdictions, to effect such result.
23. PROVISIONS SEPARABLE.
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.
24. GENDER.
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.
25. NO JOINT VENTURE.
The Company and the Investment Advisor 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.
26. INVESTMENT ADVISOR OPTION GRANTS.
Under the Company's 1996 long-term Incentive Plan, as amended and restated
on March 13, 1998 (LTIP"), the Company has granted the Investment Advisor
options to purchase 14,963,057 Class "A" Shares (par value $0.01 per share)
of the Company ("Shares"), and may from time to time grant additional
options to purchase Shares to the Investment Advisor (all such options thus
granted by the Company to the Investment Advisor being hereinafter referred
to as "REIT OPTIONS") and Restricted Shares (as defined in the LTIP). The
Company agrees that the initial grant of awards to the Investment Advisor
under the terms of the LTIP shall be only in the form of REIT Options.
Further, only the initial grant of REIT Options shall vest immediately and
not be subject to any vesting periods otherwise contemplated by the LTIP.
The Investment Advisor agrees that over time it will grant options for the
same total number of Shares as are covered by REIT Options or award all
Restricted Shares received by it, as applicable,
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to its officers, key employees and consultants on such terms and at such times
as it deems appropriate (all such options thus granted by the Investment Advisor
being hereinafter referred to as "ADVISOR OPTIONS" and the Advisor Options and
Restricted Shares awarded by the Investment Advisor being herein called the
"ADVISOR AWARDS"). Advisor Options will generally have a three (3) year vesting
period (1/3 per year) from the date of issue with an exercise horizon
coterminous with that of the REIT Options and will provide for accelerated
vesting in the event of a change in control of the Company and will have the
same option exercise price (or prices) as the related REIT Options. If any
Advisor Option is partially or wholly forfeited, a replacement Advisor Option or
Options shall be granted (for the forfeited Shares).
Additionally, the following shall be applicable:
At all times prior to the date on which Shares with a Fair Market
Value (as such term is defined in the LTIP) of at least $250,000,000 are
outstanding that were issued as part of one or more primary or secondary
public offerings (with not less than $200,000,000 constituting issuances of
Shares which are not resales of Shares outstanding at 11:59 p.m. on the
Contribution Date) (an "IPO EVENT"):
a. No options (including, without limitation, Advisor Options)
shall be granted to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇;
b. Total Awards (including, without limitation, Advisor Awards)
granted under the LTIP to any person who has an interest, directly or
indirectly, in Starwood Mezzanine or SOFI IV (a "Starwood Insider") by
the Investment Advisor and the Company shall not exceed 2.5%, in the
aggregate, of the fully diluted Shares outstanding from time to time;
and
c. Vesting of Advisor Options granted to Starwood Insiders
shall, in addition to any service criteria imposed by the Board of
Trustees of the Company, occur on a PARI PASSU percentage basis with
the percentage of the total number of Shares held on the Contribution
Date by SOP IV and Starwood Mezzanine as have been sold or distributed
from time to time by SOFI IV or Starwood Mezzanine; provided, however,
that in no event shall such Advisor Options vest at a rate that is
faster than 33.33% per annum and provided further, however, that,
subject to the continued satisfaction of any service criteria imposed
by the Board of Trustees of the Company, any theretofore unvested
Advisor Options held by Starwood Insiders shall vest in full on the
earlier to occur of a change of control of the Company (as provided in
the LTIP) or on the fifth anniversary of the date of grant.
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IN WITNESS WHEREOF, the parties have executed this Agreement on and as of
the date first above written
STARWOOD FINANCIAL ADVISORS, L.L.C.
By: Starwood Capital Group, L.L.C.
Its: Manager
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------
Its: Senior Vice President
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
STARWOOD FINANCIAL TRUST,
a California Business Trust
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇▇
Its: CEO & President
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