Document:

Exhibit 10.2

 

AMENDED AND RESTATED TUDOU HOLDINGS LIMITED

2010 SHARE INCENTIVE PLAN

 

ARTICLE 1.

 

PURPOSE

 

The purpose of the Amended and Restated Tudou Holdings Limited 2010 Share Incentive Plan (the “Plan”) is to promote the success and enhance the value of Youku Tudou Inc. (the “Company”) by linking the personal interests of the members of the Board, Employees, and Consultants to those of Company shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company shareholders.  The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees, and Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.

 

ARTICLE 2.

 

DEFINITIONS AND CONSTRUCTION

 

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise.  The singular pronoun shall include the plural where the context so indicates.

 

2.1                                 “Administrator” shall mean the entity that conducts the general administration of the Plan as provided in Article 10.  With reference to the duties of the Administrator under the Plan which have been delegated to one or more persons pursuant to Section 10.6, or as to which the Board has assumed, the term “Administrator” shall refer to such person(s) unless the Committee or the Board has revoked such delegation or the Board has terminated the assumption of such duties.

 

2.2                                 “Applicable Accounting Standards” shall mean International Financial Reporting Standards, Generally Accepted Accounting Principles in the United States, or such other accounting principles or standards as may apply to the Company’s financial statements under Applicable Laws.

 

2.3                                 “Applicable Laws” means (i) the laws of the Cayman Islands as they relate to the Company and its Shares; (ii) the legal requirements relating to the Plan and the Awards under applicable provisions of the corporate, securities, tax and other laws, rules, regulations and government orders of any jurisdiction applicable to Awards granted to residents; and (iii) the rules of any applicable securities exchange, national market system or automated quotation system on which the Shares are listed, quoted or traded.

 

2.4                                 “Article” means an article of this Plan.

 

2.5                                 “Award” shall mean an Option, a Restricted Share award, a Restricted Share Unit award, a Dividend Equivalents award, a Deferred Share award, a Share Payment award or a Share Appreciation Right, which may be awarded or granted under the

 

 

Plan (collectively, “Awards”).

 

2.6                                 “Award Agreement” shall mean any written notice, agreement, terms and conditions, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine consistent with the Plan.

 

2.7                                 “Board” shall mean the Board of Directors of the Company.

 

2.8                                 “Code” shall mean the United States Internal Revenue Code of 1986, as amended from time to time.

 

2.9                                 “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee designated by the Board.

 

2.10                          “Company” shall mean Youku Tudou Inc., a Cayman Islands corporation.

 

2.11                          “Consultant” means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to a Service Recipient; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (c) the consultant or adviser is a natural person who has contracted directly with the Service Recipient to render such services.

 

2.12                          “Change in Control” means any of the following transactions:

 

(a)                     a transfer of more than fifty percent (50%) of the outstanding equity securities of the Company (by voting power) by one or more shareholders of the Company, other than transfers pursuant to a merger or consolidation of the Company,

 

(b)                     any sale of all or substantially all of the assets of the Company, or

 

(c)                      any merger or consolidation of the Company with or into any other entity, where more than fifty percent (50%) of the outstanding equity securities of the Company or any surviving or resulting entity (by voting power) are directly or indirectly controlled by persons other than shareholders of the Company immediately prior to such merger or consolidation.

 

All percentages referenced herein shall be determined on a fully diluted basis; provided, however, that the following transactions shall not constitute, or be considered in determining, a Change in Control: (i) any acquisition of securities by the Company, or (ii) any acquisition of securities by any employee benefit plan or related trust sponsored or maintained by the Company.

 

2.13                          “Deferred Share” shall mean a right to receive Shares awarded under Section 7.3.

 

2.14                          “Director” shall mean a member of the Board, as constituted from time to time.

 

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2.15                          “Dividend Equivalent” shall mean a right to receive the equivalent value (in cash or Shares) of dividends paid on Shares, awarded under Section 7.1.

 

2.16                          “Effective Date” shall have the meaning set forth in Section 11.1.

 

2.17                          “Eligible Individual” shall mean any person who is an Employee, a Consultant or a Non-Employee Director, as determined by the Administrator; provided, however, that Awards shall not be granted to Consultants or Non-Employee Directors who are resident of any country in the European Union, and any other country which pursuant to Applicable Laws does not allow grants to non-employees. The Administrator’s designation of an Eligible Individual at any time shall not require the Administrator to designate such person at any other time.  The Administrator shall consider such factors as it deems pertinent in selecting Eligible Individuals and in determining the number of an Award, including without limitation: (i) the financial condition of the Company, (ii) the market value of the Company, (iii) the anticipated profits of the current or future years, (iv) the contributions of the Eligible Individual to the profitability and the development of the Company, both present and future, and (v) other compensation provided to the Eligible Individual.

 

2.18                          “Employee” means any person who is in the employ of a Service Recipient, subject to the control and direction of the Service Recipient as to both the work to be performed and the manner and method of performance.  The payment of a director’s fee by a Service Recipient shall not be sufficient to constitute “employment” by the Service Recipient.

 

2.19                          “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

2.20                          “Fair Market Value” means, as of any date, the value of Shares determined as follows:

 

(a)                     If the Shares are listed on one or more established and regulated securities exchanges, national market systems or automated quotation system on which Shares are listed, quoted or traded, its Fair Market Value shall be the closing sales price for such shares (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Shares are listed (as determined by the Administrator) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

 

(b)                     If the Shares are not listed on an established securities exchange, notational market system or automated quotation system, but are regularly quoted by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such shares as quoted by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Shares on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

 

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(c)                      In the absence of an established market for the Shares of the type described in (a) and (b), above, the Fair Market Value thereof shall be determined by the Administrator in good faith and in its discretion by reference to (i) the placing price of the latest private placement of the Shares and the development of the Company’s business operations and the general economic and market conditions since such latest private placement, (ii) other third party transactions involving the Shares and the development of the Company’s business operation and the general economic and market conditions since such sale, (iii) an independent valuation of the Shares, or (iv) such other methodologies or information as the Administrator determines to be indicative of Fair Market Value, relevant.

 

2.21                          “Holder” shall mean a person who has been granted an Award.

 

2.22                          “Incentive Option” shall mean an Option that is intended to meet the applicable provisions of Section 422 of the Code.

 

2.23                          “IPO” shall mean an initial public offering and listing of the Company’s Shares or American depositary shares representing Shares on any internationally recognized stock exchange including without limitation the New York Stock Exchange or the Nasdaq National Market System as approved by the Board.

 

2.24                          “Non-Employee Director” shall mean a Director of the Company who is not an Employee.

 

2.25                          “Non-Qualified Option” shall mean an Option that is not an Incentive Option.

 

2.26                          “Option” shall mean a right to purchase shares of Shares at a specified exercise price, granted under Article 5.  An Option shall be either a Non-Qualified Option or an Incentive Option; provided, however, that Incentive Options may only be granted to Employees.

 

2.27                          “Parent” means any entity whether domestic or foreign, in an unbroken chain of entities ending with the Company, if each of the entities other the first entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

2.28                          “Plan” shall mean this Amended and Restated Tudou Holdings Limited 2010 Share Incentive Plan, as it may be amended or restated from time to time.

 

2.29                          “Related Entity” means any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or Subsidiary of the Company holds a substantial economic interest, directly or indirectly, through ownership or contractual arrangements but which is not a Subsidiary and which the Board designates as a Related Entity for purposes of the Plan.  The Company’s Related Entities also include the Company’s variable interest entities as determined according to the Applicable Accounting Standards.

 

2.30                          “Restricted Share” shall mean Shares awarded under Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture or repurchase.

 

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2.31                          “Restricted Share Units” shall mean the right to receive Shares awarded under Section 7.4.

 

2.32                          “Securities Act” shall mean the Securities Act of 1933, as amended.

 

2.33                          “Service Recipient” means the Company, any Parent or Subsidiary of the Company and any Related Entity to which an Eligible Individual provides services as an Employee, Consultant or as a Director.

 

2.34                          “Share” means a Class A Ordinary Share, par value US$0.00001 per share, of the Company, and such other securities of the Company that may be substituted for Shares pursuant to Article 12.

 

2.35                          “Share Appreciation Right” shall mean a share appreciation right granted under Article 8.

 

2.36                          “Share Payment” shall mean (a) a payment in the form of Shares, or (b) an option or other right to purchase Shares, as part of a bonus, deferred compensation or other arrangement, awarded under Section 7.2.

 

2.37                          “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, directly or indirectly, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

2.38                          “Substitute Award” shall mean an Award granted under the Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a Change in Control; provided, however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option or Share Appreciation Right.

 

2.39                          “Termination of Service” shall mean,

 

(a)                    As to a Consultant, the time when the engagement of a Holder as a Consultant to a Service Recipient is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment or service with the Company, any Subsidiary or any Related Entity.

 

(b)                    As to a Non-Employee Director, the time when a Holder who is a Non-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Holder simultaneously commences or remains in employment or service with the Company, any Subsidiary or any Related Entity.

 

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(c)                     As to an Employee, the time when the employee-employer relationship between a Holder and the Service Recipient is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, Permanent Disability or retirement; but excluding terminations where the Holder simultaneously commences or remains in employment or service with the Company, any Subsidiary or any Related Entity.  Permanent Disability means, with respect to an individual, a physical or mental impairment that has a substantial and long-term adverse effect on his or her ability to carry out normal day-to-day and major life activities as determined by the Administrator.

 

The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to Terminations of Service, including, without limitation, the question of whether a Termination of Service resulted from a discharge for cause and all questions of whether particular leaves of absence constitute a Termination of Service; provided, however, that, with respect to Incentive Options, unless the Administrator otherwise provides in the terms of the Award Agreement or otherwise, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section.   For purposes of the Plan, a Holder’s employee-employer relationship or consultancy relations shall be deemed to be terminated in the event that the Subsidiary or Related Entity employing or contracting with such Holder ceases to remain a Subsidiary or Related Entity following any merger, sale of securities or other Change in Control or event (including, without limitation, a spin-off).

 

2.40                          “Trading Date” means the closing of the first sale to the general public of the Shares pursuant to an effective registration statement under Applicable Laws, which results in the Shares being publicly traded on one or more established stock exchanges or national market systems.

 

2.41                          “Youku Tudou Plan” means the Youku Tudou Inc. Share Incentive Plan, as it may be amended or restated from time to time.

 

ARTICLE 3.

 

SHARES SUBJECT TO THE PLAN

 

3.1                                 Number of Shares.

 

(a)                     Subject to Section 12.1 and Section 3.1(b), the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan is 57,450,960.

 

(b)                   To the extent that an Award terminates, expires, or lapses for any reason, or is settled in cash and not Shares, then any Shares subject to the Award shall again be available for the grant of an Award pursuant to the Plan.  Shares delivered by the Holder or withheld by the Company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a).  If any Shares forfeited by the Holder or repurchased by the Company at the same or lesser price than paid by the Holder so that the Shares

 

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are again returned to the Company, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 3.1(a).  To the extent permitted by Applicable Laws, Shares issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination by the Company, any Parent or any Subsidiary or Related Entity shall not be counted against Shares available for grant pursuant to the Plan.  The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan.  Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Option to fail to qualify as an incentive stock option under Section 422 of the Code.

 

3.2                                 Share Distributed.  Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares, treasury Shares (subject to Applicable Laws) or Shares purchased on the open market.  Additionally, in the discretion of the Administrator, American Depository Shares in an amount equal to the number of Shares which otherwise would be distributed pursuant to an Award may be distributed in lieu of Shares in settlement of any Award.  If the number of Shares represented by an American Depository Share is other than on a one-to-one basis, the limitations of Section 3.1 shall be adjusted to reflect the distribution of American Depository Shares in lieu of Shares.

 

ARTICLE 4.

 

GRANTING OF AWARDS

 

4.1                                 Participation.  The Administrator may, from time to time, select from among all Eligible Individuals, those to whom an Award shall be granted and shall determine the nature and amount of each Award, which shall not be inconsistent with the requirements of the Plan.  No Eligible Individual shall have any right to be granted an Award pursuant to the Plan.

 

4.2                                 Award Agreement.  Each Award shall be evidenced by an Award Agreement. In particular, an option agreement shall state: (i) the grant date; (ii) vesting start date; (iii) number of Shares that could be purchased under the Option; (iv) exercise price per share; and (v) such other information as the Administrator deems appropriate or necessary.  Award Agreements evidencing Incentive Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.

 

4.3                                 Jurisdictions.  Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in the jurisdictions in which the Service Recipients operate or have Eligible Individuals, or in order to comply with the requirements of any securities exchange, the Administrator, in its sole discretion, shall have the power and authority to: (a) determine which Subsidiaries and Related Entities shall be covered by the Plan; (b) determine which Eligible Individuals are eligible to participate in the Plan; (c) modify the terms and conditions of any Award granted to Eligible Individuals to comply with Applicable Laws; (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall be attached to the Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Sections 3.1; and (e) take any action, before or after

 

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an Award is made, that it deems advisable to obtain approval or comply with any Applicable Laws including necessary local governmental regulatory exemptions or approvals or listing requirements of any such securities exchange.  Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the any Applicable Laws.

 

4.4                                 Stand-Alone and Tandem Awards.  Awards granted pursuant to the Plan may, in the sole discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan.  Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

 

ARTICLE 5.

 

OPTIONS

 

5.1                                 General.  The Administrator is authorized to grant Options to Eligible Individuals on the following terms and conditions:

 

(a)                    Exercise Price.  The exercise price per Share subject to an Option shall be determined by the Administrator in its sole discretion; provided, however, that no Option may be granted to an individual subject to taxation in the United States at less than the Fair Market Value on the date of grant, without compliance with Section 409A of the Code, or the Holder’s consent.  The exercise price per Share subject to an Option may be amended or adjusted in the absolute discretion of the Administrator, the determination of which shall be final, binding and conclusive.  For the avoidance of doubt, to the extent not prohibited by Applicable Laws (including any applicable exchange rule), a downward adjustment of the exercise prices of Options mentioned in the preceding sentence shall be effective without the approval of the Company’s shareholders or the approval of the affected Holders.

 

(b)                    Vesting. The period during which the right to exercise, in whole or in part, an Option vests in the Holder shall be set by the Administrator and the Administrator may determine that an Option may not be exercised in whole or in part for a specified period after it is granted.  Such vesting may be based on service with the Service Recipient or any other criteria selected by the Administrator.  At any time after grant of an Option, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Option vests.  No portion of an Option which is unexercisable at a Holder’s Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the Award Agreement or by action of the Administrator following the grant of the Option.

 

(c)                     Time and Conditions of Exercise.  Subject to other provisions herein, the Administrator shall determine the time or times at which an Option may be exercised in whole or in part, including exercise prior to vesting and that a partial exercise must be with respect to a minimum number of shares.  The Administrator shall also determine any conditions, if any, that must be satisfied before all or part of an Option may be exercised.

 

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The Administrator shall also determine any conditions, if any, that must be satisfied before all or part of an Option may be exercised.

 

(d)                    Partial Exercise.  An exercisable Option may be exercised in whole or in part.  However, an Option shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of shares.

 

(e)                     Manner of Exercise.  All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Company at its principal office, or to such agent as the Administer designates from time to time:

 

(i)            A written notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised.  The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option (such notice shall be accompanied by appropriate proof of the right of such person to exercise the  Option or such portion of the Option);

 

(ii)           Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all Applicable Laws or regulations, and the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded.  The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

 

(iii)          In the event that the Option shall be exercised pursuant to Section 9.3 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option, as determined in the sole discretion of the Administrator; and

 

(iv)          Full payment of the exercise price and applicable withholding taxes to share administrator of the Company for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by Section 9.1 and 9.2.

 

(f)                      Term.  The term of any Option granted under the Plan shall not exceed ten years, provided that if the Administrator determines that the IPO is unlikely to be consummated prior to the 10th anniversary of the grant date of any Option granted hereunder, upon the application of the Holder of such Option and to the extent permitted by the Applicable Laws, the Administrator may in its sole discretion extend the expiration date of such Option subject to satisfaction of any conditions the Administrator seems fit.  Except as limited by the requirements of Section 409A or Section 422 of the Code and regulations and rulings thereunder, the Administrator may extend the term of any outstanding Option, and may extend the time period during which vested Options may be exercised, in connection with any Termination of Service of the Holder, and may amend any other term or condition of such Option relating to such a Termination of Service.

 

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(g)                     Evidence of Grant.  All Options shall be evidenced by an Award Agreement between the Company and the Holder.  The Award Agreement shall include such additional provisions as may be specified by the Administrator.

 

(h)                    Trust.  The Company may, as a condition of exercise of the Option, require that the Shares are issued in the name of a trustee nominated by the Company to be held on trust for the Holder of the Option under the terms and conditions of a trust agreement approved by the Company.

 

5.2                                 Incentive Options.  Incentive Options may be granted to Employees of the Company, a Parent or Subsidiary of the Company (which qualify as a parent or subsidiary corporation under Section 424(e) and (f) of the Code respectively).  Incentive Options may not be granted to Employees of a Related Entity or to Non-Employee Directors or Consultants.  The terms of any Incentive Options granted pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the following additional provisions of this Section 5.2:

 

(a)                   Expiration of Option.  An Incentive Option may not be exercised to any extent by anyone after the first to occur of the following events:

 

(i)            Ten years from the date it is granted, unless an earlier time is set in the Award Agreement;

 

(ii)           Three months after the Holder’s Termination of Service as an Employee (save in the case of termination on account of Permanent Disability or death); and

 

(iii)          One year after the date of the Holder’s Termination of Service on account of Permanent Disability or death.  Upon the Holder’s Permanent Disability or death, any Incentive Options exercisable at the Holder’s Permanent Disability or death may be exercised by the Holder’s legal representative or representatives, by the person or persons entitled to do so pursuant to the Holder’s last will and testament, or, if the Holder fails to make testamentary disposition of such Incentive Option or dies intestate, by the person or persons entitled to receive the Incentive Option pursuant to the applicable laws of descent and distribution as determined under Applicable Laws.

 

(b)                   Individual Dollar Limitation.  The aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares with respect to which Incentive Options are first exercisable by a Holder in any calendar year may not exceed U.S. $100,000 or such other limitation as imposed by Section 422(d) of the Code, or any successor provision.  To the extent that Incentive Options are first exercisable by a Holder in excess of such limitation, the excess shall be considered Non-Qualified Options.

 

(c)                    Ten Percent Owners.  An Incentive Option shall be granted to any individual who, at the date of grant, owns Shares possessing more than ten percent of the total combined voting power of all classes of shares of the Company only if such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant.

 

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(d)                   Transfer Restriction.  The Holder shall give the Company prompt notice of any disposition of Shares acquired by exercise of an Incentive Option within (i) two years from the date of grant of such Incentive Option or (ii) one year after the transfer of such Shares to the Holder.

 

(e)                    Expiration of Incentive Options.  No Award of an Incentive Option may be made pursuant to this Plan after the tenth anniversary of the Effective Date.

 

(f)                     Right to Exercise.  During a Holder’s lifetime, an Incentive Option may be exercised only by the Holder.

 

5.3                                 Substitute Awards.  Notwithstanding the foregoing provisions of this Article 5 to the contrary, in the case of an Option that is a Substitute Award, the price per share of the shares subject to such Option may be less than the Fair Market Value per share on the date of grant, provided, that the excess of:  (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of:  (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares.

 

5.4                                 Substitution of Share Appreciation Rights.  The Administrator may provide in the Award Agreement evidencing the grant of an Option that the Administrator, in its sole discretion, shall have the right to substitute a Share Appreciation Right for such Option at any time prior to or upon exercise of such Option; provided, that such Share Appreciation Right shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable.

 

ARTICLE 6.

 

AWARD OF RESTRICTED STOCK

 

6.1                                 Award of Restricted Share.

 

(a)                    The Administrator is authorized to grant Restricted Share to Eligible Individuals, and shall determine the amount of, and the terms and conditions, including the restrictions applicable to each award of Restricted Shares, which terms and conditions shall not be inconsistent with the Plan, and may impose such conditions on the issuance of such Restricted Share as it deems appropriate.

 

(b)                    The Administrator shall establish the purchase price, if any, and form of payment for Restricted Share; provided, however, that such purchase price shall be no less than the par value of the Shares to be purchased, unless otherwise permitted by Applicable Laws.  In all cases, legal consideration shall be required for each issuance of Restricted Shares.

 

6.2                                 Rights as Shareholders.  Subject to Section 6.4, upon issuance of Restricted Shares, the Holder shall have, unless otherwise provided by the Administrator, all the rights of a shareholder with respect to said shares, subject to the restrictions in his

 

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or her Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however, that, in the sole discretion of the Administrator, any extraordinary distributions with respect to the Shares shall be subject to the restrictions set forth in Section 6.3.

 

6.3                                 Restrictions.  All Restricted Shares (including any shares received by Holders thereof with respect to Restricted Shares as a result of share dividends, share splits or any other form of recapitalization) shall, in the terms of each individual Award Agreement, be subject to such restrictions and vesting requirements as the Administrator shall provide.  Such restrictions may include, without limitation, restrictions concerning voting rights and transferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria as selected by the Administrator, including, without limitation, criteria based on the Holder’s duration of employment, directorship or consultancy with the Service Recipient, or other criteria selected by the Administrator.  By action taken after the Restricted Shares are issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, accelerate the vesting of such Restricted Shares by removing any or all of the restrictions imposed by the terms of the Award Agreement.  Restricted Share may not be sold or encumbered until all restrictions are terminated or expire.

 

6.4                                 Repurchase or Forfeiture of Restricted Shares.  If no price was paid by the Holder for the Restricted Shares, upon a Termination of Service the Holder’s rights in unvested Restricted Shares then subject to restrictions shall lapse, and such Restricted Shares shall be surrendered to the Company and cancelled without consideration. If a purchase price was paid by the Holder for the Restricted Shares, upon a Termination of Service the Company shall have the right to repurchase from the Holder the unvested Restricted Shares then subject to restrictions at a cash price per share equal to the price paid by the Holder for such Restricted Shares or such other amount as may be specified in the Award Agreement. The Administrator in its sole discretion may provide that in the event of certain events the Holder’s rights in unvested Restricted Shares shall not lapse, such Restricted Shares shall vest and shall be non-forfeitable, and if applicable, the Company shall not have a right of repurchase.

 

6.5                                 Certificates for Restricted Share.  Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine.  Certificates or book entries evidencing Restricted Shares must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Share, and the Company may, in it sole discretion, retain physical possession of any share certificate until such time as all applicable restrictions lapse.

 

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ARTICLE 7.

 

AWARD OF DIVIDEND EQUIVALENTS, DEFERRED SHARE, SHARE PAYMENTS, RESTRICTED SHARE UNITS

 

7.1                                 Dividend Equivalents.

 

(a)                   Dividend Equivalents may be granted by the Administrator based on dividends declared on the Shares, to be credited as of dividend payment dates during the period between the date an Award is granted to a Holder and the date such Award vests, is exercised, is distributed or expires, as determined by the Administrator.  Such Dividend Equivalents shall be converted to cash or additional Shares by such formula and at such time and subject to such limitations as may be determined by the Administrator.

 

7.2                                 Share Payments.  The Administrator is authorized to make Share Payments to any Eligible Individual.  The number or value of shares of any Share Payment shall be determined by the Administrator and may be based upon any other criteria, including service to the Service Recipients, determined by the Administrator.  Share Payments may, but are not required to be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Individual.

 

7.3                                 Deferred Share.  The Administrator is authorized to grant Deferred Share to any Eligible Individual.  The number of shares of Deferred Share shall be determined by the Administrator and may be based on any specific criteria, including service to the Service Recipients, as the Administrator determines, in each case on a specified date or dates or over any period or periods determined by the Administrator.  Shares underlying a Deferred Share award will not be issued until the Deferred Share award has vested, pursuant to a vesting schedule or other conditions or criteria set by the Administrator.  Unless otherwise provided by the Administrator, a Holder of Deferred Share shall have no rights as a Company shareholder with respect to such Deferred Share until such time as the Award has vested and the Shares underlying the Award has been issued to the Holder.

 

7.4                                 Restricted Share Units.  The Administrator is authorized to grant Restricted Share Units to any Eligible Individual.  The number and terms and conditions of Restricted Share Units shall be determined by the Administrator.  The Administrator shall specify the date or dates on which the Restricted Share Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including service to the Service Recipients, in each case on a specified date or dates or over any period or periods, as the Administrator determines.  The Administrator shall specify, or permit the Holder to elect, the conditions and dates upon which the Shares underlying the Restricted Share Units which shall be issued, which dates shall not be earlier than the date as of which the Restricted Share Units vest and become nonforfeitable and which conditions and dates shall be subject to compliance with Section 409A of the Code, to the extent applicable to the Holder.  Restricted Share Units may be paid in cash, Shares or both, as Determined by the Administrator.  On the distribution dates, the Company shall issue to the Holder one unrestricted, fully transferable Shares (or the Fair Market Value of one such Share in cash) for each vested and nonforfeitable Restricted Share Unit.

 

7.5                                 Term.  The term of a Dividend Equivalent award, Deferred Share award, Share Payment award and/or Restricted Share Unit award shall be set by the Administrator in its sole discretion.

 

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7.6                                 Exercise or Purchase Price.  The Administrator may establish the exercise or purchase price of shares of Deferred Share, shares distributed as a  Share Payment award or shares distributed pursuant to a Restricted Share Unit award; provided, however, that value of the consideration shall not be less than the par value of a share of Shares, unless otherwise permitted by Applicable Laws.

 

7.7                                 Exercise upon Termination of Service.  A Dividend Equivalent award, Deferred Share award,  Share Payment award and/or Restricted Share Unit award is exercisable or distributable only while the Holder is an Employee, Director or Consultant, as applicable.  The Administrator, however, in its sole discretion may provide that the Dividend Equivalent award, Deferred Share award, Share Payment award and/or Restricted Share Unit award may be exercised or distributed subsequent to a Termination of Service in certain events.

 

ARTICLE 8.

 

AWARD OF SHARE APPRECIATION RIGHTS

 

8.1                                 Grant of Share Appreciation Rights.

 

(a)                   The Administrator is authorized to grant Share Appreciation Rights to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine consistent with the Plan. The term of any Share Appreciation Right granted under the Plan shall not exceed ten years. Except as limited by the requirements of Section 409A or Section 422 of the Code and regulations and rulings thereunder, the Administrator may extend the term of any outstanding Share Appreciation Right, and may extend the time period during which vested Share Appreciation Rights may be exercised, in connection with any Termination of Service of the Holder, and may amend any other term or condition of such Share Appreciation Right relating to such a Termination of Service.

 

(b)                   A Share Appreciation Right shall entitle the Holder (or other person entitled to exercise the Share Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Share Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the Share Appreciation Right from the Share Value on the date of exercise of the Share Appreciation Right by the number of shares of Shares with respect to which the Share Appreciation Right shall have been exercised, subject to any limitations the Administrator may impose.

 

(c)                    The exercise price per Share subject to an Share Appreciation Right shall be determined by the Administrator and set forth in the Award Agreement which may be a fixed or variable price related to the Fair Market Value of the Shares; provided, however, that no Share Appreciation Right may be granted to an individual subject to taxation in the United States at less than the Fair Market Value on the date of grant, without compliance with Section 409A of the Code, or the Holder’s consent.  The exercise price per Share subject to a Share Appreciation Right may be amended or adjusted in the absolute discretion of the Administrator, the determination of which shall be final, binding and conclusive.  For the avoidance of doubt, to the extent not prohibited by Applicable Laws (including any applicable securities exchange rule), a downward adjustment of the exercise prices of 

 

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Share Appreciation Rights mentioned in the preceding sentence shall be effective without the approval of the Company’s shareholders or the approval of the affected Holders.

 

(d)                   In the case of an Share Appreciation Right that is a Substitute Award, the price per share of the Shares subject to such Share Appreciation Right may be less than the Fair Market Value per share on the date of grant, provided, that the excess of:  (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the Shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of:  (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares.

 

8.2                                 Share Appreciation Right Vesting.

 

(a)                    The period during which the right to exercise, in whole or in part, a Share Appreciation Right vests in the Holder shall be set by the Administrator and the Administrator may determine that a Share Appreciation Right may not be exercised in whole or in part for a specified period after it is granted.  Such vesting may be based on service with the Service Recipients, or any other criteria selected by the Administrator.  At any time after grant of a Share Appreciation Right, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which a Share Appreciation Right vests.

 

(b)                    No portion of a Share Appreciation Right which is unexercisable at Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the Award Agreement or by action of the Administrator following the grant of the Share Appreciation Right.

 

8.3                                 Manner of Exercise.  All or a portion of an exercisable Share Appreciation Right shall be deemed exercised upon delivery of all of the following to the Administrator, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

 

(a)                     A written or electronic notice complying with the applicable rules established by the Administrator stating that the Share Appreciation Right, or a portion thereof, is exercised.  The notice shall be signed by the Holder or other person then entitled to exercise the Share Appreciation Right or such portion of the Share Appreciation Right;

 

(b)                     Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal, state or foreign securities laws or regulations.  The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance; and

 

(c)                      In the event that the Share Appreciation Right shall be exercised pursuant to this Section 8.3 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Share Appreciation Right, in

 

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the sole discretion of the Administrator.

 

8.4                                 Payment.  Amounts payable upon exercise of a Share Appreciation Right shall be in cash, Shares (based on its Fair Market Value as of the date the  Share Appreciation Right is exercised), or a combination of both, as determined by the Administrator.

 

ARTICLE 9.

 

ADDITIONAL TERMS OF AWARDS

 

9.1                                 Payment.  The Administrator shall determine the methods by which payments by any Holder with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check payable to the order of the Company, (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) or Shares held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences under Applicable Accounting Standards, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) following the Trading Date, delivery of a notice that the Holder has placed a market sell order with a broker with respect to Shares then issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required, provided, that payment of such proceeds is then made to the Company upon settlement of such sale, or (d) other form of legal consideration acceptable to the Administrator.  The Administrator shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Holders.  Notwithstanding any other provision of the Plan to the contrary, no Holder shall be permitted to make payment with respect to any Awards granted under the Plan to the extent prohibited by Applicable Laws.

 

9.2                                 Tax Withholding.  No Shares shall be delivered under the Plan to any Holder until such Holder has made arrangements acceptable to the Administrator for the satisfaction of any income, employment, social welfare or other tax withholding obligations under Applicable Laws.  Each Service Recipient shall have the authority and the right to deduct or withhold, or require a Holder to remit to the applicable Service Recipient, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Holder’s employment, social welfare or other tax obligations) required by Applicable Laws to be withheld with respect to any taxable event concerning a Holder arising as a result of the Plan.  The Administrator may in its sole discretion and in satisfaction of the foregoing requirement allow a Holder to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the surrender of Shares).  The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for tax purposes that are applicable to such taxable income.  The Administrator shall determine the Fair Market Value of the Shares, consistent with Applicable Laws, for tax withholding obligations due in connection with a broker-assisted cashless Option or Share Appreciation Right exercise involving the sale of shares to pay the Option or Share Appreciation Right exercise price or any tax withholding obligation.

 

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9.3                                 Transferability of Awards.

 

(a)                    Except as otherwise provided in Section 9.3(b):

 

(i)                                     No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, as required under applicable domestic relations laws, unless and until such Award has been exercised, or the shares underlying such Award have been issued, and all restrictions applicable to such shares have lapsed;

 

(ii)                                  No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence; and

 

(iii)                               During the lifetime of the Holder, only the Holder may exercise an Award (or any portion thereof) granted to him under the Plan, unless it has been disposed of pursuant to applicable domestic relations law; after the death of the Holder, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Award Agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Holder’s will or under the then Applicable Laws of descent and distribution.

 

(b)                    Notwithstanding Section 9.3(a), the Administrator, in its sole discretion, may determine to permit a Holder to transfer an Award other than an Incentive Option to certain persons or entities related to the Holder, including but not limited to members of the Holder’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Holder’s family and/or charitable institutions, or to such other persons or entities as may be expressly approved by the Administrator, pursuant to such conditions and procedures as the Administrator may establish, including  the following conditions:  (i) an Award transferred shall not be assignable or transferable other than by will or the laws of descent and distribution; (ii) an Award transferred shall continue to be subject to all the terms and conditions of the Award as applicable to the original Holder (other than the ability to further transfer the Award); and (iii) the Holder and the permitted transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a permitted transferee, (B) satisfy any requirements for an exemption for the transfer under Applicable Laws and (C) evidence the transfer.

 

(c)                     Notwithstanding Section 9.3(a), a Holder may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Holder and to receive any distribution with respect to any Award upon the Holder’s death.  A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Holder, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator.  If the Holder is married

 

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and resides in a community property jurisdiction, a designation of a person other than the Holder’s spouse as his or her beneficiary with respect to more than 50% of the Holder’s interest in the Award shall not be effective without the prior written or electronic consent of the Holder’s spouse.  If no beneficiary has been designated or survives the Holder, payment shall be made to the person entitled thereto pursuant to the Holder’s will or the laws of descent and distribution.  Subject to the foregoing, a beneficiary designation may be changed or revoked by a Holder at any time provided the change or revocation is filed with the Administrator prior to the Holder’s death.

 

9.4                                 Conditions to Issuance of Shares.

 

(a)                   Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise of any Award, unless and until the Board has determined, with advice of counsel, that the issuance of such Shares is in compliance with all Applicable Laws and the Shares are covered by an effective registration statement or applicable exemption from registration.  In addition to the terms and conditions provided herein, the Administrator may require that a Holder make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.

 

(b)                   All Share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with all Applicable Laws.  The Administrator may place legends on any Shares certificate or book entry to reference restrictions applicable to the Shares.

 

(c)                    The Administrator shall have the right to require any Holder to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Administrator.

 

(d)                   No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding down.

 

(e)                    Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by any Applicable Laws, the Company shall not deliver to any Holder certificates evidencing Shares issued in connection with any Award and instead such Shares shall be recorded in the books of the Company (or, as applicable, the Administrator or the transfer agent of the Company).

 

9.5                                 Forfeiture Provisions.  Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the Plan, or to require a Holder to agree by separate written instrument, that:  (a)(i) any proceeds, gains or other economic benefit actually or 

 

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constructively received by the Holder upon any receipt or exercise of the Award, or upon the receipt or resale of any Shares underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of Service occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, or (ii) the Holder at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (iii) the Holder incurs a Termination of Service for “cause” (as such term is defined in the sole discretion of the Administrator, or as set forth in a written agreement relating to such Award between the Company and the Holder).

 

9.6                                 Applicable Currency.  Unless otherwise required by Applicable Laws, or as determined in the discretion of the Administrator, all Awards shall be designated in [U.S. dollars].  A Holder may be required to provide evidence that any currency used to pay the exercise price of any Award were acquired and taken out of the jurisdiction in which the Holder resides in accordance with Applicable Laws, including foreign exchange control laws and regulations.  In the event the exercise price for an Award is paid in another foreign currency, as permitted by the Administrator, the amount payable will be determined by conversion from U.S. dollars at the exchange rate as selected by the Administrator on the date of exercise.

 

ARTICLE 10.

 

ADMINISTRATION

 

10.1                          Administrator.  The Committee shall administer the Plan (except as otherwise permitted herein) and shall consist of at least two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom shall comply with Applicable Laws.  Except as may otherwise be provided in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment.  Committee members may resign at any time by delivering written or electronic notice to the Board.  Vacancies in the Committee may only be filled by the Board.  Notwithstanding the foregoing, (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan (i) with respect to Awards granted to Non-Employee Directors or (ii) in case there is no such Committee and (b) the Board or Committee may delegate its authority hereunder to the extent permitted by Section 10.6.

 

10.2                          Duties and Powers of Administrator.  It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions.  The Administrator shall have the power to interpret the Plan and the Award Agreement, and to adopt such rules for the administration, interpretation and application of the Plan as are not inconsistent therewith, to interpret, amend or revoke any such rules and to amend any Award Agreement provided that the rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely by such amendment, unless the consent of the Holder is obtained or such amendment is otherwise permitted under Section 11.10.  Any such grant or award under the Plan need not be the same with respect to each Holder.  Any such interpretations and rules with respect to Incentive Options shall be consistent with the provisions of Section 422 of the Code.  In case a Committee is formed to administer the Plan,

 

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in the sole discretion of the Board, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Applicable Laws are required to be determined in the sole discretion of the Committee.

 

10.3                          Action by the Committee.  In case a Committee is formed to administer the Plan, unless otherwise established by the Board or in any charter of the Committee, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee.  Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of a Service Recipient, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

 

10.4                          Authority of Administrator.  Subject to any specific designation in the Plan, the Administrator has the exclusive power, authority and sole discretion to:

 

(a)                    Designate Eligible Individuals to receive Awards;

 

(b)                    Determine the type or types of Awards to be granted to each Eligible Individual;

 

(c)                     Determine the number of Awards to be granted and the number of shares of Shares to which an Award will relate;

 

(d)                    Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the duration of an Award, the exercise price, grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines. In making such determinations, the Administrator may take into account the nature of the services rendered by the Holders, their present and potential contributions to the Service Recipient’s success and such other factors as the Administrator in its discretion shall deem relevant;

 

(e)                     Determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

 

(f)                      Prescribe the form of each Award Agreement, which need not be identical for each Holder;

 

(g)                     Decide all other matters that must be determined in connection with an Award;

 

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(h)                    Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

 

(i)                        Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and

 

(j)                       Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.

 

10.5                          Decisions Binding.  The Administrator’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.

 

10.6                          Delegation of Authority.  To the extent permitted by Applicable Laws, the Board or Committee may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to Article 10; provided, however, that in no event shall an officer be delegated the authority to grant awards to, or amend awards held by, the following individuals:  (a) individuals who are subject to Section 16 of the Exchange Act, or (b) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder.  Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee.  At all times, the delegatee appointed under this Section 10.6 shall serve in such capacity at the pleasure of the Board and the Committee.

 

ARTICLE 11.

 

MISCELLANEOUS PROVISIONS

 

11.1                          Effective Date.  The Plan has been adopted and approved by the Board, subject to shareholder approval.  The Plan will be effective as of the date it is approved by the Company’s shareholders in accordance with the applicable provisions of the Company’s Amended and Restated Memorandum of Association and Articles of Association (the “Effective Date”) and will supersede the share incentive plan previously approved by the Company’s shareholders.  Awards may be granted or awarded prior to such shareholder approval, provided,  that such Awards shall not be exercisable, shall not vest and the restrictions thereon shall not lapse and no Shares shall be issued pursuant thereto prior to the Effective Date, and provided further,  that if such approval has not been obtained within twelve (12) months after adoption of the Plan by the Board, all Awards previously granted or awarded under the Plan shall thereupon be canceled and become null and void.

 

11.2                          Expiration Date.  The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the Effective Date.  Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement.

 

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11.3                          Amendment, Suspension or Termination of the Plan.  Except as otherwise provided in this Section 11.3, at any time and from time to time, the Administrator may terminate, amend or modify the Plan; provided, however, that (a) to the extent necessary and desirable to comply with Applicable Laws, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required, and (b) shareholder approval is required for any amendment to the Plan that (i) increases the number of Shares available under the Plan (other than any adjustment as provided by Article 12), (ii) permits the Administrator to extend the term of the Plan or the exercise period for an Option or Share Appreciation Right beyond ten years from the date of grant, or (iii) results in a material increase in benefits or a change in eligibility requirements.

 

11.4                          No Shareholders Rights.  Except as otherwise provided herein, a Holder shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Holder becomes the record owner of such Shares.

 

11.5                          Paperless Administration.  In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Holder may be permitted through the use of such an automated system.

 

11.6                          Effect of Plan upon Other Compensation Plans.  The adoption of the Plan shall not affect any other compensation or incentive plans in effect for a Service Recipient.  Nothing in the Plan shall be construed to limit the right of a Service Recipient:  (a) to establish any other forms of incentives or compensation for Eligible Individuals, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, securities or assets of any corporation, partnership, limited liability company, firm or association.

 

11.7                          Compliance with Laws.  The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all Applicable Laws (including but not limited to securities law and margin requirements), and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith.  Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements.  To the extent permitted by Applicable Laws, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such Applicable Laws.

 

11.8                          Titles and Headings, References to Sections of the Code or Exchange Act.  The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.  References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.

 

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11.9                          Governing Law.  The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the Cayman Islands without regard to conflicts of laws thereof.

 

11.10                   Section 409A.  To the extent that the Administrator determines that any Award granted under the Plan is subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code.  To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date.  Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Administrator determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Administrator may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section.

 

11.11                   No Rights to Awards.  No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Eligible Individuals, Holders or any other persons uniformly.

 

11.12                   No Right to Employment or Services.  Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right of the Service Recipient to terminate any Holder’s employment or services at any time, nor confer upon any Holder any right to continue in the employ or service of any Service Recipient.

 

11.13                   Unfunded Status of Awards.  The Plan is intended to be an “unfunded” plan for incentive compensation.  With respect to any payments not yet made to a Holder pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Holder any rights that are greater than those of a general creditor of the Company, any Subsidiary or any Related Entity.

 

11.14                   Indemnification.  To the extent allowable pursuant to Applicable Laws, each member of the Administrator shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any

 

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and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Memorandum of Association and Articles of Association, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

 

11.15                   Relationship to other Benefits.  No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of any Service Recipient except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

 

11.16                   Expenses.  The expenses of administering the Plan shall be borne by the Service Recipients.

 

11.17                   Holders’ Compliance Responsibility.  The Holder of Awards shall seek all relevant advice, including but not limited to legal, tax, or accounting advice, in connection with his/her/its holding, exercise and/or transfer of the Awards.  The Holder shall waive any rights which he/she/it may now or in future have against the Company and any claim and/or action against the Company arising in respect of this Plan, or by exercising any rights that the Holders may have under the Plan or the holding, exercise and/or transfer of the Awards.  The Holder shall be responsible for compliance with the Applicable Laws in connection with his/her/its holding and/or exercise of any Award and any other right under this Plan and shall indemnify the Company and/or any of Related Entities against any loss or liability incurred by the Company and/or any of its Related Entities due to such Holder’s failure to comply with this section 11.17.

 

11.18                   Youku Tudou Plan.  Notwithstanding anything to the contrary in the Plan, all Awards granted under the Plan shall be subject to the terms and conditions of both the Plan and the Youku Tudou Plan.  To the extent that there are inconsistencies between the provisions concerning a Holder’s rights and/or obligations under the Plan and the Youku Tudou Plan, the provisions in the Youku Tudou Plan shall prevail.

 

ARTICLE 12.

 

CHANGES IN CAPITAL STRUCTURE

 

12.1                          Adjustments.  In the event of any distribution, share split, combination or exchange of Shares, amalgamation, arrangement or consolidation, reorganization of the Company, including the Company becoming a subsidiary in a transaction not involving a Change in Control, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to its shareholders, or any other change affecting the Shares or the share price of a Share, the Administrator shall make such proportionate and equitable adjustments, if any, to reflect such change with respect to (a) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 and substitutions of

 

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shares in a parent or surviving company); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any outstanding Awards under the Plan.  The form and manner of any such adjustments shall be determined by the Administrator in its sole discretion.

 

12.2                          Change in Control. Except as may otherwise be provided in any Award Agreement or any other written agreement entered into by and between the Company and a Holder, upon, or in anticipation of, a Change in Control, the Administrator may in its sole discretion provide for (a) any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Holder the right to exercise such Awards during a period of time as the Administrator shall determine, (b) either the purchase of any Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested (and, for the avoidance of doubt, if as of such date the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Holder’s rights, then such Award may be terminated by the Company without payment), or (c) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion or the assumption of or substitution of such Award by the successor or surviving corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of Shares and prices.

 

12.3                          Assumption of Awards — Change in Control.  In the event of a Change in Control, each Award may be assumed by the successor entity or Parent thereof in connection with the Change in Control.  Except as provided otherwise in an individual Award Agreement, an Award will be considered assumed if the Award either is (a) assumed by the successor entity or Parent thereof or replaced with a comparable award (as determined by the Administrator) with respect to capital shares (or equivalent) of the successor entity or Parent thereof or (b) replaced with a cash incentive program of the successor entity which preserves the compensation element of such Award existing at the time of the Change in Control and provides for subsequent payout in accordance with the same vesting schedule applicable to such Award.

 

12.4                          Outstanding Awards — Other Changes.  In the event of any other change in the capitalization of the Company or corporate change other than those specifically referred to in this Article 12, the Administrator may, in its absolute discretion, make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Administrator may consider appropriate to prevent dilution or enlargement of rights.

 

12.5                          No Other Rights.  Except as expressly provided in the Plan, no Holder shall have any rights by reason of any subdivision or consolidation of shares of any class, the payment of any dividend, any increase or decrease in the number of shares of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation.  Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares subject to an Award or the grant or exercise price of any Award.

 

25EXHIBIT 10.1

 

FORM OF BUSINESS MANAGEMENT AGREEMENT

 

THIS BUSINESS MANAGEMENT AGREEMENT (this “Agreement”), dated as of [                    ], 20[    ], is entered into by and between INLAND REAL ESTATE INCOME TRUST, INC., a Maryland corporation (the “Company”) and IREIT BUSINESS MANAGER & ADVISOR INC., an Illinois corporation (the “Business Manager”).

 

WITNESSETH:

 

WHEREAS, the Company is a Maryland corporation created in accordance with Maryland General Corporation Law and intends to qualify as a REIT (as defined below);

 

WHEREAS, the Company desires to avail itself of the experience, sources of information, advice, assistance and facilities available to the Business Manager and to have the Business Manager undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the Board of Directors (as defined below), all as provided herein; and

 

WHEREAS, the Business Manager is willing to undertake to render these services, subject to the supervision of the Board of Directors, on the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the mutual covenants set forth herein, the parties hereto agree as follows:

 

1.                                      Definitions. As used herein, the following capitalized terms shall have the meanings set forth below:

 

“Acquisition Expenses” means any and all expenses, exclusive of Acquisition Fees, incurred by the Company, the Business Manager or any Affiliate of either in connection with selecting, evaluating or acquiring any investment in Real Estate Assets, including but not limited to legal fees and expenses, travel and communication, appraisals and surveys, nonrefundable option payments regardless of whether the Real Estate Asset is acquired, accounting fees and expenses, computer related expenses, architectural and engineering reports, environmental and asbestos audits and surveys, title insurance and escrow fees, and personal and miscellaneous expenses.

 

“Acquisition Fees” means any and all fees and commissions, exclusive of Acquisition Expenses, paid by any Person to any other Person (including any fees or commissions paid by or to any Affiliate of the Company or the Business Manager) in connection with making or investing in Mortgage Loans or other Loans or the purchase, development or construction of an Real Estate Asset, including, without limitation, real estate commissions, selection fees, investment banking fees, third party seller’s fees (to the extent the Company agrees to pay these fees as part of an acquisition), development fees, construction fees, non-recurring management fees, loan fees, points or any other fees of a similar nature. Excluded shall be development fees and construction fees paid to any Person not affiliated with the Sponsor in connection with the actual development and construction of any Property.

 

 

“Affiliate” or “Affiliates” means, with respect to any other Person: any Person directly or indirectly owning, controlling or holding, with the power to vote, ten percent (10%) or more of the outstanding voting securities of such other Person; any Person ten percent (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; any Person directly or indirectly controlling, controlled by or under common control with such other Person; any executive officer, director, trustee, general partner or manager of such other Person; and any legal entity for which such Person acts as an executive officer, director, trustee, general partner or manager.

 

“Average Invested Assets” means, for any period, the average of the aggregate book value of the assets of the Company, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and Loans secured by, Real Estate Assets, and all Real Estate-Related Securities and consolidated and unconsolidated Joint Ventures or other partnerships, before non-cash charges such as depreciation, amortization, impairments and bad debt reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter.

 

“Board of Directors” means the persons holding the office of director of the Company as of any particular time under the Charter.

 

“Business Day” means any day other than Saturday, Sunday or any other day on which national banks are required or are authorized to be closed in Chicago, Illinois.

 

“Business Management Fee” means the fee payable to the Business Manager under Section 7(b) hereof.

 

“Charter” means the articles of incorporation of the Company, as amended or restated from time to time.

 

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder or corresponding provisions of subsequent revenue laws.

 

“Competitive Real Estate Commission” means the real estate or brokerage commission paid for the purchase or Sale of a Property that is reasonable, customary and competitive in light of the size, type and location of such Property.

 

“Contract Purchase Price”  means the amount of monies or other consideration paid or contributed by the Company, from time to time: (1) to acquire, directly or indirectly, any Real Estate Asset or an Incremental Interest in a Real Estate Asset, and including any indebtedness for money borrowed to finance the purchase, indebtedness secured by the Real Estate Asset, which is assumed, or indebtedness that is refinanced or restructured, all in connection with the acquisition, and which is or will be secured by the Real Estate Asset at the time of the acquisition; or (2) to make any Property Improvements. The Contract Purchase Price shall exclude Acquisition Fees and Acquisition Expenses.  With respect to monies funded or contributed by the Company to a Joint Venture, the Contract Purchase Price shall be equal to the product of: (a) the amount determined in accordance with the foregoing; and (b) the Ownership Percentage.

 

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“Equity Stock” means all classes or series of capital stock of the Company authorized under the Charter, including, without limit, its common stock, $.001 par value per share, and preferred stock, $.001 par value per share.

 

“Fiscal Year” means the calendar year ending December 31.

 

“GAAP”  means generally accepted accounting principles as in effect in the United States of America from time to time or any other accounting basis mandated by the Securities and Exchange Commission.

 

“Gross Offering Proceeds” means the total proceeds from the sale of up to 150,000,000 Shares in the Offering before deducting Issuer Costs. For purposes of calculating Gross Offering Proceeds, the selling price for all Shares, including those for which volume discounts apply, shall be deemed to be $10.00 per Share. Unless specifically included in a given calculation, Gross Offering Proceeds does not include any proceeds from the sale of Shares under the Company’s distribution reinvestment plan.

 

“Incremental Interest” means, any increase in the percentage interest owned by the Company, directly or indirectly, including through a Joint Venture, in a Real Estate Asset, which results from an additional investment by the Company in the Real Estate Asset, whether through an additional capital contribution, the funding of additional debt or the assumption or guarantee of debt, which, in the case of a Joint Venture, is not matched by a corresponding contribution or assumption by the other Joint Venture partner.

 

“Independent Director” means any director of the Company who is an “Independent Director” for purposes of the Charter.

 

“Invested Capital” means the aggregate original issue price paid for the Shares, before reduction for Organization and Offering Expenses, reduced by any distribution of Sale or financing proceeds.

 

“Issuer Costs” means all expenses, other than Selling Commissions and the Marketing Contribution, incurred by, and to be paid from, the assets of the Company in connection with and in preparing the Company for registration and offering its Shares to the public, including, but not limited to, expenses for printing, engraving and mailing, salaries of the employees of the Company, or the Sponsor and its Affiliates, while engaged in sales activity, charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts, expenses of qualifying the sale of the Shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees and expenses.

 

“Joint Venture” means a joint venture, limited liability company, corporation or partnership arrangement in which the Company, or any subsidiary thereof, is a co-venturer, member, stockholder or partner with one or more other Persons or an entity, which acquires, owns or manages Real Estate Assets.

 

“Key Person” means a natural person who, at the time of the determination: (1) serves as an executive officer of the Company; (2) serves as an executive officer of the Business Manager; or (3) performs services that are integral to the operation of the Company, as mutually

 

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agreed upon in writing by the Company and the Business Manager; provided, however, that for purposes of clauses (1) and (2), a “Key Person” shall not include any person that, as of the date on which the Company has mailed or otherwise delivered the Qualifying Internalization Notice, concurrently serves as a director or executive officer of any other REIT(s) sponsored by the Sponsor; provided, further, that for purposes of this definition, a secretary of an entity shall not be considered an “executive officer.”

 

“Liquidity Amount” means: (1) in the case of a Sale of Real Estate Assets, the Net Sales Proceeds realized by the Company from the Sale of Real Estate Assets since the Company’s inception and distributed to Stockholders, in the aggregate, plus the total amount of any other distributions paid by the Company to Stockholders, in the aggregate, from the Company’s inception until the date that the Liquidity Amount is determined, in the aggregate; and (2) in the case of a Liquidity Event, the Market Value, plus the total distributions paid by the Company to Stockholders from the Company’s inception until the date that the Liquidity Amount is determined.

 

“Liquidity Event” means a Listing or any merger, reorganization, business combination, share exchange or acquisition by any Person or related group of Persons of beneficial ownership of all or substantially all of the Shares in one or more related transactions, or another similar transaction involving the Company, pursuant to which the Stockholders receive cash or the securities of another issuer that are listed on a national securities exchange, as full or partial consideration for their Shares.

 

“Listing” means, in the aggregate, the filing of a Form 8-A (or any successor form) with the Securities and Exchange Commission to register any or all Shares, or the shares of common stock of any of the Company’s subsidiaries, on a national securities exchange, the approval of the original listing application related thereto by the applicable exchange and the commencement of trading in the Shares, or the shares of common stock of any of the Company’s subsidiaries, on the exchange.  Upon a Listing, the Shares, or the shares of common stock of the Company’s subsidiaries, shall be deemed “Listed.”  A Listing shall also be deemed to occur on the effective date of a merger in which the consideration received by the holders of the Shares is securities of another issuer that are listed on a national securities exchange; provided, however, that if the merger is effectuated through a wholly owned subsidiary of the Company, a Listing will not occur until the consideration received by the Company shall be distributed to the holders of the Shares.

 

“Loans” means debt financing evidenced by bonds, notes, debentures or similar instruments or letters of credit and Mortgage Loans.

 

“Market Value” means the value of the Company measured in connection with an applicable Liquidity Event determined as follows: (1) in the case of a Listing of the Shares, or the shares of common stock of any of the Company’s subsidiaries, by taking the average closing price over the period of thirty (30) consecutive trading days during which the Shares, or the shares of the common stock of the Company’s subsidiary, as applicable, are eligible for trading, beginning on the 180th day after Listing of the Shares, or the shares of the common stock of the Company’s subsidiary, as applicable, multiplied by the number of Shares, or the shares of the common stock of the Company’s subsidiary, as applicable, outstanding on the date of

 

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measurement; or (2) in the case of the receipt by Stockholders of securities of another entity that are trading on a national securities exchange prior to, or that become listed on a national securities exchange concurrent with, the consummation of the Liquidity Event, as follows: (a) in the case of securities of another entity that are trading on a national securities exchange prior to the consummation of the Liquidity Event, the value ascribed to the securities in the transaction giving rise to the Liquidity Event, multiplied by the number of those securities issued to the holders of the Shares in respect of the transaction; and (b) in the case of securities of another entity that become listed on a national securities exchange concurrent with the consummation of the Liquidity Event, the average closing price over a period of thirty (30) consecutive trading days during which the securities are eligible for trading, beginning on the 180th day after the listing of the securities, multiplied by the number of those securities issued to the holders of the Shares in respect of the transaction.  In addition, any distribution of cash consideration received by the Stockholders in connection with any Liquidity Event shall be added to the Market Value determined in accordance with clause (1) or (2).

 

“Marketing Contribution” means any and all compensation payable to underwriters, dealer managers or other broker-dealers in connection with marketing the sale of Shares, including, without limitation, compensation payable to Inland Securities Corporation, and which includes reimbursement for any out-of-pocket, itemized and detailed due diligence expenses incurred in connection with investigating the Company or any offering of Shares.

 

“Mortgage Loans” means notes or other evidences of indebtedness or obligations that are secured or collateralized, directly or indirectly, by Real Property or other interests in Real Property.

 

“Net Income” means, for any period, the aggregate amount of total revenues applicable to the period less the expenses applicable to the same period other than additions to, or allowances for, non-cash charges such as depreciation, amortization, impairments and bad debt reserves and excluding any gain from any Sale.

 

“Net Sales Proceeds” means the proceeds from any Sale of Real Estate Assets, less any costs incurred in selling the Real Estate Asset(s) including, but not limited to, legal fees and selling commissions and further reduced by the amount of any indebtedness encumbering the Real Estate Asset(s).

 

“Offering” means the initial public offering of Shares on a “best efforts” basis pursuant to the Prospectus, as amended and supplemented from time to time.

 

“Organization and Offering Expenses” means the aggregate of all Issuer Costs, plus Selling Commissions and the Marketing Contribution.

 

“Ownership Percentage” means, with respect to any Real Estate Asset at a specified time, the percentage of capital stock, membership interests, partnership interests or other equity interests in the Real Estate Asset owned directly or indirectly by the Company at that time, without regard to classification of such equity interests.

 

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“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.

 

“Priority Return” means a seven percent (7.0%) per annum cumulative, pre-tax non-compounded return on Invested Capital.

 

“Property” or “Properties” means interests in: (1) Real Property; (2) long-term ground leases; or (3) any buildings, structures, improvements, furnishings, fixtures and equipment, whether or not located on the Real Property, in each case owned or to be owned by the Company either directly or indirectly through one or more Affiliates, Joint Ventures, partnerships or other legal entities.

 

“Property Improvements” means any monies invested or otherwise funded by the Company, directly or indirectly to develop, construct, renovate, or otherwise physically improve a Real Estate Asset, including, but not limited to major tenant improvements, whether pursuant to allowances, concessions or rent abatements, all to the extent that the monies invested or funded for each of these purposes were approved by the Board of Directors as part of the initial plan for the Real Estate Asset.

 

“Prospectus” has the meaning set forth in Section 2(10) of the Securities Act of 1933, as amended (the “Securities Act”), including a preliminary prospectus, an offering circular as described in Rule 253 of the General Rules and Regulations under the Securities Act, or, in the case of an intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling the Shares to the public.

 

“Real Estate Assets” means any and all Properties and other direct or indirect investments in equity interests in, or Loans secured, directly or indirectly, by, or otherwise relating to, Property (other than investments in bank accounts, money market funds or other current assets), including any interest in a Joint Venture, owned by the Company, directly or indirectly through one or more of its Affiliates or Joint Ventures.  Notwithstanding the foregoing, “Real Estate Assets” shall not include any investments in Real Estate-Related Securities.

 

“Real Estate Manager” means either of Inland National Real Estate Services, LLC or Inland National Real Estate Services II, LLC, each a Delaware limited liability company, or any of their successors or assigns, or entities owned or controlled by the Sponsor and engaged by the Company to manage a Property or Properties.

 

“Real Estate-Related Securities” means investments in equity securities of both publicly traded and private companies, including REITs and pass-through entities, that own real Real Estate Assets, including investments in commercial mortgage-backed securities, owned by the Company, directly or indirectly through one or more of its Affiliates or Joint Ventures, but excluding, for these purposes, ownership interests in a Joint Venture.

 

“Real Property” means land, rights or interests in land (including, but not limited to, leasehold interests), and any buildings, structures, improvements, furnishings, fixtures and equipment located on, or used in connection with, land and rights or interest in land.

 

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“REIT” means a real estate investment trust as defined in Sections 856 through 860 of the Code.

 

“Sale” means any transaction or series of transactions, regardless of whether Net Sales Proceeds are distributed to Stockholders as a result thereof, whereby: (1) the Company directly or indirectly, including through any Affiliate (except as described in other subsections of this definition), sells, grants, transfers, conveys, or relinquishes its ownership of any Real Estate Asset or portion thereof, except for a contribution to a Joint Venture in which the Company, directly or indirectly, has, or will have, an ownership interest; (2) the Company directly or indirectly, including through any Affiliate (except as described in other subsections of this definition), sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company in any Joint Venture in which it is a co-venturer or partner; (3) any Joint Venture directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any Real Estate Asset or portion thereof (excluding for these purposes any Loans or Mortgage Loans); (4) the Company or any Joint Venture directly or indirectly, including through any Affiliate (except as described in other subsections of this definition), sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, through any event which results in the Company or the Joint Venture, as applicable, receiving a insurance proceeds or condemnation awards; (5) the Company directly or indirectly, including through any Affiliate (except as described in other subsections of this definition), sells, grants, transfers, conveys, or relinquishes its ownership of any other Real Estate Asset not previously described in this definition or any portion thereof.  Notwithstanding anything to the contrary herein, the sale, grant, transfer or conveyance of any Real Estate-Related Security shall not be treated as a “Sale” hereunder.

 

“Selling Commissions” means any and all commissions, not to exceed seven percent (7.0%) of the gross offering price of any Shares, payable to underwriters, dealer managers or other broker-dealers in connection with the sale of Shares.

 

“Shares” means the shares of common stock, par value $.001 per share, of the Company, and “Share” means one of those Shares.

 

“Sponsor” means Inland Real Estate Investment Corporation, a Delaware corporation.

 

“Stockholders” means holders of shares of the Company’s common stock, $.001 par value per share, or any other share of Equity Stock having the right to elect directors of the Company.

 

“Total Operating Expenses” means the aggregate expenses of every character paid or incurred by the Company as determined under GAAP, including the Business Management Fee and other fees payable hereunder, but excluding:

 

(a)                                 the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and listing of any shares of the Equity Stock;

 

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(b)                                 Property expenses incurred at each Property, including any fees paid to, or expenses reimbursed on behalf of, the Real Estate Managers;

 

(c)                                  interest payments;

 

(d)                                 taxes;

 

(e)                                  non-cash charges such as depreciation, amortization, impairments and bad debt reserves;

 

(f)                                   any incentive fee payable pursuant to Section 7(d) hereof; and

 

(g)                                  Acquisition Fees, Acquisition Expenses, real estate commissions on resale of property and other expenses connected with acquiring, disposing and owning Real Estate Assets (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and Property improvements).

 

2.                                      Duties of the Business Manager. The Business Manager shall consult with the Company and shall furnish advice and recommendations with respect to all aspects of the business and affairs of the Company.  The Business Manager shall inform the Board of Directors of factors that come to the Business Manager’s attention that may, in its opinion, influence the policies of the Company.  Subject to the supervision of the Board of Directors and consistent with the provisions of the Charter, the Business Manager, directly or indirectly through Affiliates or third parties supervised by the Business Manager or its Affiliates, shall use commercially reasonable efforts to:

 

(a)                                 identify potential investment opportunities in Real Estate Assets located in the United States, consistent with the Company’s investment objectives and policies; including but not limited to:

 

(i)                                     locating, analyzing and selecting potential investments in Real Estate Assets;

 

(ii)                                  structuring and negotiating the terms and conditions of acquisition and disposition transactions;

 

(iii)                               arranging financing and refinancing or other changes in the asset or capital structure of the Company and reinvesting the proceeds from the Sale of, or otherwise deal with the investments in, Real Estate Assets; and

 

(iv)                              overseeing material leases and service contracts, related to the Real Estate Assets.

 

(b)                                 assist the Board of Directors in evaluating investment opportunities;

 

(c)                                  provide the Board of Directors with research and other statistical data and analysis in connection with Real Estate Assets and the Company’s operations and investment policies;

 

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(d)                                 manage the Company’s day-to-day operations, consistent with the investment objectives and policies established by the Board of Directors from time to time, including hiring and supervising Company employees, if any;

 

(e)                                  investigate and conduct relations with lenders, consultants, accountants, brokers, third party asset managers, attorneys, underwriters, appraisers, insurers, corporate fiduciaries, banks, builders and developers, sellers and buyers of investments and persons acting in any other capacity specified by the Company from time to time, and enter into contracts in the Company’s name with, and retaining and supervising services performed by, such parties in connection with investments that have been or may be acquired or disposed of by the Company;

 

(f)                                   cooperate with the Real Estate Managers in connection with real estate management services and other activities relating to Real Estate Assets, subject to any requirement under the laws, rules and regulations affecting REITs that own Real Property that the Business Manager or the applicable Real Estate Manager, as the case may be, qualifies as an “independent contractor” as that phrase is used in connection with applicable laws, rules and regulations affecting REITs;

 

(g)                                  upon request of the Company, act, or obtain the services of others to act, as attorney-in-fact or agent of the Company in making, acquiring and disposing of investments, disbursing and collecting funds in connection with any acquisition or disposition, paying the debts and fulfilling the obligations of the Company and handling, prosecuting and settling any claims of the Company, including foreclosing and otherwise enforcing mortgage and other liens and security interests securing investments;

 

(h)                                 assist in negotiations on behalf of the Company with investment banking firms and other institutions or investors for public or private sales of Equity Stock or for other financing on behalf of the Company, provided that in no event may the Business Manager act as a broker, dealer, underwriter or investment advisor of, or for, the Company;

 

(i)                                     maintain, with respect to any Real Property and to the extent available, title insurance or other assurance of title and customary fire, casualty and public liability insurance;

 

(j)                                    coordinate placement of casualty and public liability insurance and directors’ and officers’ insurance;

 

(k)                                 except as otherwise provided by the Company, provide office space, equipment and personnel as required for the performance of the foregoing services as Business Manager, subject to the reimbursement of costs associated therewith;

 

(l)                                     advise the Board of Directors, from time to time, of the Company’s operating results and coordinate preparation, with each Real Estate Manager, of an operating budget including one, three and five year projections of operating results and such other reports as may be appropriate for each Real Estate Asset;

 

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(m)                             prepare, on behalf of the Company, and supervise the filing of all reports required by the Securities and Exchange Commission, including without limitation Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, and all reports and returns required by the Internal Revenue Service, other state or federal governmental agencies or other Company vendors relating to the Company and its operations, including specifically its compliance with REIT rules;

 

(n)                                 prepare, on behalf of the Company, and supervise the distribution of reports to Stockholders, and act on behalf of the Company to communicate with Stockholders, brokers, dealers, financial advisors and custodians, whether by in person, written, electronic or telephonic means;

 

(o)                                 arrange for, and plan, the Company’s annual meetings of Stockholders;

 

(p)                                 supervise communications with the Company’s transfer agent;

 

(q)                                 maintain the Company’s books and records including, but not limited to, appraisals and fairness opinions obtained in connection with acquiring or disposing Real Estate Assets;

 

(r)                                    assist the Board of Directors in evaluating Sales and Liquidity Events, including without limitation: (i) performing due diligence in connection with investigating potential Sales or Liquidity Events; (ii) selecting and conducting relations with experts, investment banking firms and potential acquirors of Real Estate Assets, among others; (iii) preparing investment and other strategic models regarding Liquidity Events for evaluation by the Board of Directors; and (iv) preparing written reports and making presentations regarding potential Sales and Liquidity Events to the Board of Directors;

 

(s)                                   administer the Company’s bookkeeping and accounting functions, including without limitation: (i) establishing and implementing accounting and financial reporting procedures, processes and policies; (ii) maintaining the Company’s general ledger and sub ledgers; (iii) recording investments in Real Estate Assets, investments in Joint Ventures and any funding of indebtedness; (iv) performing accounting research; (v) budgeting, forecasting and analyzing the Company’s performance; (vi) assisting in selecting and implementing accounting and financial system software; (vii) overseeing platform accounting functions and practices; (viii) reporting to the Board of Directors and audit committee; (ix) monitoring the Company’s compliance with The Sarbanes—Oxley Act of 2002, as amended, and the effectiveness of the Company’s internal controls; (x) monitoring and ensuring compliance with ratios and covenants set forth in the loan documents for any Loans; (xi) providing required monthly, quarterly and annual financial reporting to the Company’s lenders; and (xii) ensuring proper accounting treatment for derivative instruments;

 

(t)                                    enter into ancillary agreements with the Sponsor and its Affiliates to arrange for the services and licenses to be provided by the Business Manager hereunder,

 

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as summarized on Schedule 2(t) hereto (collectively, the “Service Provider Agreements”); and

 

(u)                                 undertake and perform all services or other activities necessary and proper to carry out the Company’s investment objectives, including providing secretarial, clerical and administrative assistance for the Company and maintaining a web site that provides up-to-date Company information.

 

3.                                      No Partnership or Joint Venture. The Company and the Business Manager are not, and shall not be deemed to be, partners or Joint Venturers with each other.

 

4.                                      REIT Qualifications. Notwithstanding any other provision of this Agreement to the contrary, the Business Manager shall refrain from taking any action that, in its reasonable judgment or in any judgment of the Board of Directors of which the Business Manager has written notice, would adversely affect the qualification of the Company as a REIT under the Code or that would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Company, its Equity Stock or its Real Estate Assets, or that would otherwise not be permitted by the Charter. If any such action is ordered by the Board of Directors, the Business Manager shall promptly notify the Board of Directors that, in the Business Manager’s judgment, the action would adversely affect the Company’s status as a REIT or violate any law, rule or regulation or the Charter, and that the Business Manager shall refrain from taking such action pending further clarification or instruction from the Board of Directors.

 

5.                                      Bank Accounts. At the direction of the Board of Directors or the officers of the Company, the Business Manager shall establish and maintain bank accounts in the name of the Company, and shall collect and deposit into and disburse from such accounts moneys on behalf of the Company, upon such terms and conditions as the Board of Directors may approve, provided that no funds in any such account shall be commingled with funds of the Business Manager. The Business Manager shall, from time to time, as the Board of Directors or the officers of the Company may require, render appropriate accountings of such collections, deposits and disbursements to the Board of Directors and to the Company’s auditors.

 

6.                                      Fidelity Bond. The Business Manager shall not be required to obtain or maintain a fidelity bond in connection with performing its services hereunder.

 

7.                                      Compensation. Subject to the provisions of this Agreement, including Section 12 hereof, and in addition to any compensation for additional services that may be paid pursuant to Section 9 hereof, for services rendered hereunder the Company shall pay, in cash, to the Business Manager the following:

 

(a)                                 An Acquisition Fee, in an amount equal to 1.5% of the Contract Purchase Price of each Real Estate Asset, in connection with: (i) acquiring each Real Estate Asset, or any Incremental Interest therein, including by way of exchanging a debt interest for an equity interest, but excluding the contribution of a Real Estate Asset owned, directly or indirectly, by the Company to a Joint Venture; or (ii) any Property Improvement.  In the case of a Real Estate Asset acquired by a Joint Venture from a third party, the Acquisition Fee payable hereunder shall be equal to the product of: (x) 1.5% of the

 

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Contract Purchase Price paid by the Joint Venture; and (y) the Ownership Percentage.  The Business Manager shall submit an invoice to the Company at or within a reasonable amount of time following the closing or closings of each event for which an Acquisition Fee is due hereunder, and no less frequently than quarterly, accompanied by a computation of the Acquisition Fee. The Company shall pay the Acquisition Fee to the Business Manager within a reasonable period of time after receipt by the Company of the invoice; provided, that the Business Manager may decide, in its sole discretion, to be paid an amount less than the total amount to which it is entitled, and the excess amount that is not paid may, in the Business Manager’s sole discretion, be deferred, waived permanently or accrued, without interest, to be paid at a later point in time.

 

(b)                                 An annual business management fee (the “Business Management Fee”) equal to 0.65% of Average Invested Assets, payable quarterly in an amount equal to 0.1625% of Average Invested Assets as of the last day of the immediately preceding quarter; provided, that the Business Manager may decide, in its sole discretion, to be paid an amount less than the total amount to which it is entitled in any particular quarter, and the excess amount that is not paid may, in the Business Manager’s sole discretion, be waived permanently or deferred or accrued, without interest, to be paid at a later point in time.

 

(c)                                  Upon the Sale of a Property, a fee, payable to the Business Manager or any Affiliate thereof, in an amount not to exceed the lesser of: (i) one-half of the Competitive Real Estate Commission; or (ii) one percent (1.0%) of the contract price of a Property; provided, that this fee shall be paid only if the Business Manager or its Affiliate provides a substantial amount of services (as determined by the Board of Directors) in connection with the Sale of the applicable Property; provided, further, in no event shall the sum of this fee and any commissions paid to unaffiliated third parties exceed the lesser of: (x) the Competitive Real Estate Commission; or (y) an amount equal to three percent (3.0%) of the gross sales price of the Property.

 

(d)                                 Upon any (i) Sale of Real Estate Assets in which the Net Sales Proceeds resulting from the Sale are specifically identified and distributed to Stockholders or (ii) Liquidity Event (each, an “Incentive Triggering Event”), an incentive fee equal to ten percent (10.0%) of the amount by which: (1) the Liquidity Amount exceeds (2) Invested Capital, plus the total distributions required to be paid to Stockholders in order to pay them the Priority Return, measured as of the date of the applicable Incentive Triggering Event set forth in clause (i) or (ii) of this Section 7(d); provided, that if the Company has not satisfied the Priority Return at the time of any particular Incentive Triggering Event, this fee shall be paid on any future Incentive Triggering Event if, at the time, the Company has satisfied the return requirements set forth in clause (2) herein.

 

8.                                      Expenses.

 

(a)                                 In addition to the compensation paid to the Business Manager pursuant to Section 7 and Section 9 hereof, and subject to the limits herein, the Company shall reimburse the Business Manager, the Sponsor and their respective Affiliates for all expenses attributable to the Company paid or incurred by the Business Manager, the

 

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Sponsor or their respective Affiliates in providing certain services and licenses hereunder, including all expenses and the costs of salaries and benefits of persons employed by the Business Manager, the Sponsor and their respective Affiliates and performing services for the Company, except for the salaries and benefits of persons who also serve as one of the Company’s executive officers or as an executive officer of the Business Manager or its Affiliates.  For purposes of this Section 8(a), a secretary of an entity shall not be considered an “executive officer.”

 

(b)                                 Expenses that the Company shall reimburse pursuant to Section 8(a) hereof include, but are not limited to all:

 

(i)                                     Issuer Costs, in an amount not to exceed one and one-half percent (1.5%) of Gross Offering Proceeds;

 

(ii)                                  expenses, including Acquisition Expenses incurred in connection with selecting or acquiring Real Estate Assets or any Sale of Real Estate Assets or any contribution of Real Estate Assets to a Joint Venture;

 

(iii)                               the actual cost of goods and services purchased for and used by the Company and obtained from entities not affiliated with the Business Manager;

 

(iv)                              interest and other costs for money borrowed on behalf of the Company, including points and other similar fees;

 

(v)                                 taxes and assessments on income or attributed to Real Property;

 

(vi)                              premiums and other associated fees for insurance policies including director and officer liability insurance;

 

(vii)                           expenses of managing and operating Real Estate Assets owned by the Company, whether payable to an Affiliate of the Company or a non-affiliated Person;

 

(viii)                        fees and expenses paid to members of the Board of Directors and the fees and costs of any meetings of the Board of Directors or Stockholders;

 

(ix)                              expenses associated with dividends or distributions paid or caused to be paid by the Company to Stockholders;

 

(x)                                 expenses of organizing the Company and filing, revising, amending, converting or modifying the Charter or the bylaws;

 

(xi)                              expenses associated with Stockholder communications including the cost of preparing, printing and mailing annual reports, proxy statements and other reports required by governmental entities;

 

(xii)                           administrative service expenses charged to, or for the benefit of, the Company by non-affiliated third parties;

 

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(xiii)                        audit, accounting and legal fees charged to, or for the benefit of, the Company by non-affiliated third parties;

 

(xiv)                       transfer agent and registrar’s fees and charges;

 

(xv)                          expenses relating to any offices or office facilities maintained solely for the benefit of the Company that are separate and distinct from the Company’s executive offices;

 

(xvi)                       payments made by the Business Manager to Affiliates of the Sponsor for the services and licenses provided for the benefit of the Company, as summarized on Schedule 2(t) hereto;

 

(xvii)                    expenses incurred in connection with any Liquidity Event or Qualifying Internalization (as defined in Section 10(a)); and

 

(xviii)                 expenses incurred in connection with any investment in Real Estate-Related Securities and charged to, or for the benefit of, the Company by non-affiliated third parties.

 

(c)                                  The Company shall also reimburse the Business Manager, the Sponsor and their respective Affiliates pursuant to Section 8(a) hereof for the salaries and benefits of persons employed by the Business Manager, the Sponsor or their respective Affiliates and performing services for the Company, subject to the following:

 

(i)                                     In the case of employees of the Sponsor who also provide services for other entities sponsored by, or affiliated with, the Sponsor, the Company shall reimburse only a pro rata portion of the salary and benefits of these persons based on the amount of time spent by such persons on matters for the Company compared to the time spent by such persons on all other matters including the Company’s matters.

 

(ii)                                  In the case of Affiliates of the Sponsor (excluding the Sponsor and Inland Risk and Insurance Management Services, Inc.), and unless otherwise agreed to in writing by the Company or the Business Manager, the Company shall be responsible for the payment of the charges billed by such Affiliates for work done for the benefit of the Company.  Such charges shall be based upon: (A) such Affiliate’s “hourly billing rate” of its employees, (B) fixed amounts or (C) a combination of the “hourly billing rate” and fixed amounts, all as set forth in the respective Service Provider Agreements between the Business Manager or the Company and the Affiliate.  The “hourly billing rate” for employees of Affiliates of the Sponsor shall be based on the budgeted salaries, benefits, overhead and operating expenses of such Affiliates.  In the event that an Affiliate of the Sponsor providing services for the benefit of the Company has revenues for any one Fiscal Year that exceed its expenses for that year, such Affiliate shall rebate the excess on a pro rata basis to its clients based on the revenues attributable to such client.

 

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In each case, the Company shall reimburse salaries and related salary expenses pursuant to this Section 8(c) irrespective of whether the services performed by the subject persons could have been performed directly for the Company by independent, non-affiliated third parties.

 

(d)                                 The Business Manager shall prepare a statement documenting the expenses paid or incurred by the Business Manager, the Sponsor and their respective Affiliates for the Company on a monthly basis.  The Company shall reimburse the Business Manager, the Sponsor and their respective Affiliates for any expenses reimbursable in accordance with this Section 8 within twenty (20) days after receipt of such statements.  With respect to expenses incurred by Affiliates of the Sponsor related to services and licenses provided for the benefit of the Company, or payments made for these services and licenses, the Business Manager, in its sole discretion, may arrange for payment to be made directly from the Company to the Affiliates of the Sponsor.

 

(e)                                  The Business Manager shall cause the Sponsor and its Affiliates to direct their employees, who perform services for the Company, to keep time sheets or other appropriate billing records and receipts in connection with any reimbursement of expenses made by the Company pursuant to this Section 8.  All time sheets or other appropriate billing records or receipts shall be made available to the Company for review or inspection upon reasonable request to the Business Manager.

 

9.                                      Compensation for Additional Services, Certain Limitations.  The Company and the Business Manager will separately negotiate and agree on the fees for any additional services that the Company asks the Business Manager or its Affiliates to render in addition to those set forth in Section 2 hereof.  Any additional fees or reimbursements to be paid by the Company in connection with the additional services must be fair and reasonable and shall be approved by a majority of the Board of Directors, including a majority of the Independent Directors.

 

10.                               Qualifying Internalization.

 

(a)                                 Qualifying Internalization Process.  At any time following the one-year anniversary of the completion of the Offering, the Company may elect to internalize the functions performed by the Business Manager through an agreed-upon, one-year transition with the Business Manager on the terms and subject to the conditions set forth in this Section 10 (a “Qualifying Internalization”). Any decision to pursue a Qualifying Internalization must be approved by the affirmative vote of a majority of the Board of Directors, including a majority of the Independent Directors.  If the Company elects to pursue a Qualifying Internalization, the Company shall provide written notice to the Business Manager, stating the Company’s intention to pursue the Qualifying Internalization (the “Qualifying Internalization Notice”).  During the one-year period commencing upon the Business Manager’s receipt of the Qualifying Internalization Notice and ending on the one-year anniversary thereof (the “Transition Period”), the Company and the Business Manager shall transition the services provided by the Business Manager to the Company, as follows:

 

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(i)                                     during the the Transition Period (the “Solicitation Period”), the Company, or any of its subsidiaries, may, without the Business Manager’s consent, solicit and offer to hire each Key Person for employment by the Company or any of its subsidiaries; provided, however, that any Key Person solicited or hired by the Company or its subsidiaries during the Solicitation Period shall not commence his or her employment with the Company or its subsidiaries until the Completion Date (as hereinafter defined); provided, further, that notwithstanding anything to the contrary in this Agreement, the non-solicitation provisions of Section 19 of this Agreement shall not apply to the Key Persons during the Solicitation Period; and

 

(ii)                                  upon the written request of the Company, the Business Manager shall assign one or more of the Service Provider Agreements to the Company.

 

The closing of the Qualifying Internalization shall occur on the last business day of the Transition Period or such other date that the Company and the Business Manager mutually agree (the “Completion Date”) This Agreement shall terminate on the Completion Date.

 

(b)                                 Compensation During the Transition Period.  The Company shall not pay any internalization fee to acquire the Business Manager.  The Company shall continue to compensate the Business Manager on the terms and conditions set forth in this Agreement throughout the Transition Period.  In addition, Company, in its sole discretion, may agree to pay or reimburse the Business Manager for: (x) costs and expenses the Business Manager has incurred on the Company’s behalf in connection with the Qualifying Internalization; and (y) costs and expenses the Business Manager incurs directly in connection with the Qualifying Internalization.

 

(c)                                  Other Arrangements. Notwithstanding anything to the contrary in Section 10(b) of this Agreement, the Company and the Business Manager may enter into separate arrangements for the purchase and sale of tangible assets or services in connection with the Qualifying Internalization, which are not addressed by paragraphs (i) and (ii) of Section 10(a) of this Agreement.  These arrangements shall be subject to the negotiation and execution of definitive agreements acceptable to both parties.

 

11.                               Statements.  Except as otherwise set forth in Section 7(a) hereof, within a reasonable period of time following the end of each fiscal or calendar quarter, the Business Manager or service entity shall furnish to the Company a statement or invoice computing any and all fees and expense reimbursements due hereunder. The Business Manager shall also furnish to the Company, within a reasonable period of time following the end of each Fiscal Year, a statement computing the fees payable to the Business Manager for the just completed Fiscal Year.

 

12.                               Reimbursement by Business Manager. The Business Manager shall be obligated to reimburse the Company in the following circumstances:

 

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(a)                                 On or before the fifteenth (15th) day after the completion of the annual audit of the Company’s financial statements for each Fiscal Year, the Business Manager shall reimburse the Company for the amounts, if any, by which the Total Operating Expenses (including the Business Management Fee and other fees payable hereunder) of the Company for the Fiscal Year just ended exceeded the greater of:

 

(i)                                     two percent (2%) of the total of the Average Invested Assets for the just ended Fiscal Year; or

 

(ii)                                  twenty-five percent (25%) of the Net Income for the just ended Fiscal Year;

 

provided, however, that the Business Manager may satisfy any obligation under this Section 12(a) by reducing the amount to be paid the Business Manager under Section 7 or Section 9 hereunder until the Business Manager has satisfied its obligations under this Section 12(a); provided, further, that the Board of Directors, including a majority of the Independent Directors of the Company, may reduce the amount due under this Section 12(a) upon a finding that the increased expenses were caused by unusual or nonrecurring factors.

 

(b)                                 If, over the full term of the Offering: (i) the aggregate of all Organization and Offering Expenses exceeds eleven and one-half percent (11.5%) of the Gross Offering Proceeds; or (ii) all Issuer Costs exceed one and one-half percent (1.5%) of the Gross Offering Proceeds, the Business Manager or its Affiliates shall reimburse the Company for, or pay directly, any excess Organization and Offering Expenses or Issuer Costs incurred by the Company above these limits.

 

13.                               Other Activities of the Business Manager.  Nothing contained herein shall prevent the Business Manager or any Affiliate of the Business Manager (including the Sponsor) from engaging in any other business or activity including rendering services or advising on real estate investment opportunities to any other person or entity.

 

14.                               Term; Termination of Agreement.

 

(a)                                 Term; Renewal.  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.  It is the duty of the Board of Directors to evaluate the performance of the Business Manager annually before renewing this Agreement, and each renewal shall be for a term of no more than one year.  Each extension shall be executed in writing by both parties hereto prior to the expiration of this Agreement or of any extension thereof.

 

(b)                                 Termination Other than in Connection with a Qualifying Internalization.  Notwithstanding any other provision of the Agreement to the contrary, this Agreement may be terminated, without cause or penalty, by the Company upon a vote of a majority of the Independent Directors or by the Business Manager, in each case by providing no less than sixty (60) days’ prior written notice to the other party. In the event of the termination of this Agreement, the Business Manager will cooperate with the Company

 

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and take all reasonable steps requested to assist the Board of Directors in making an orderly transition of the functions performed hereunder by the Business Manager.

 

(c)                                  Termination Pursuant to a Qualifying Internalization. This Agreement shall terminate on the Completion Date, as described in Section 10 of this Agreement.

 

(d)                                 Obligations Following Termination.  If this Agreement is terminated pursuant to this Section 14, the parties shall have no liability or obligation to each other including any obligations imposed by Section 2(a) hereof, except as provided in this Section 14 and in Section 17 and Section 19.  Further, if this Agreement is terminated by the Company pursuant to Section 14(b) after the date on which the Company has mailed or otherwise delivered the Qualifying Internalization Notice, the parties shall immediately cease all actions undertaken in connection with the Qualifying Internalization, and shall take no further actions in connection therewith.  If, however, this Agreement is terminated by the Business Manager pursuant to Section 14(b) after the date on which the Company has mailed or otherwise delivered the Qualifying Internalization Notice, the Business Manager shall cooperate with the Company and take all actions necessary to complete the Qualifying Internalization pursuant to Section 10(a), prior to the termination of the Agreement.

 

15.                               Assignments. The Business Manager may not assign this Agreement except to a successor organization that acquires substantially all of its property and carries on the affairs of the Business Manager; provided that following the assignment, the persons who controlled the operations of the Business Manager immediately prior thereto (the “Control Persons”), control the operations of the successor organization, including the performance of duties under this Agreement; provided, further, that if at any time subsequent to the assignment the Control Persons cease to control the operations of the successor organization, the Company may thereupon terminate this Agreement.  This Agreement shall not be assignable by the Company, by operation of law or otherwise, without the consent of the Business Manager.  Any permitted assignment of this Agreement shall bind the assignee hereunder in the same manner as the assignor is bound hereunder.

 

16.                               Default, Bankruptcy, etc. At the sole option of the Company, this Agreement shall be terminated immediately upon written notice of termination from the Board of Directors to the Business Manager if any of the following events occurs:

 

(a)                                 the Business Manager violates any provisions of this Agreement and after written notice of the violation from the Company, the default is not cured within thirty (30) days; or

 

(b)                                 a court of competent jurisdiction enters a decree or order for relief in respect of the Business Manager in any involuntary case under the applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoints a receiver liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Business Manager or for any substantial part of its property or orders the winding up or liquidation of the Business Manager’s affairs not dismissed within ninety (90) days; or

 

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(c)                                  the Business Manager commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, or consents to the appointment of, or taking possession by, a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Business Manager or for any substantial part of its property, or makes any general assignment for the benefit of creditors, or fails generally to pay its debts, as they become due.

 

The Business Manager agrees that if any of the events specified in subsections (b) and (c) of this Section 16 occur, it will give written notice thereof to the Company within seven (7) days after the occurrence of such event.

 

17.                               Action Upon Termination; Survival of Certain Provisions. Except as otherwise set forth herein, upon termination of this Agreement, including any termination pursuant to Section 10 of this Agreement, the parties shall have no further liability or obligation hereunder, provided this Section 17 shall survive termination of this Agreement.  The Business Manager shall not be entitled to compensation after the date of termination, but shall be paid all compensation accruing or accrued to the date of termination, or which the Business Manager has deferred and then elects to be paid at the time of termination; provided, that (a) with respect to any Business Management Fee payable under Section 7(b) of this Agreement for the calendar quarter in which the termination occurred, the Business Manager shall be paid on a pro rata basis through the date of termination, based on the number of days for which the Business Manager served as such under this Agreement; and (b) in the event this Agreement terminates pursuant to a Qualifying Internalization, then with respect to the incentive fee payable under Section 7(d), the Business Manager, or its successor or designee, shall be entitled to an incentive fee equal to the product of: (x) the amount of the incentive fee to which the Business Manager would have been entitled under Section 7(d) had this Agreement not been terminated; and (y) the quotient of the number of days elapsed from the effective date of this Agreement through the Completion Date and the number of days elapsed from the date of this Agreement through the date of the closing of the applicable Incentive Triggering Event.

 

18.                               Actions Upon Termination.  In connection with the termination of this Agreement, the Business Manager shall:

 

(a)                                 pay over to the Company all moneys collected and held for the account of the Company pursuant to this Agreement, after deducting any accrued or deferred compensation and reimbursement for expenses to which the Business Manager is entitled;

 

(b)                                 deliver to the Board of Directors a full accounting, including a statement showing all payments collected by the Business Manager and a statement of all money held by the Business Manager, covering the period following the date of the last accounting furnished to the Board of Directors to the date of termination;

 

(c)                                  deliver to the Board of Directors all property and documents of the Company then in the custody of the Business Manager; and

 

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(d)                                 cooperate with the Company and take all reasonable steps requested by the Company to assist the Board of Directors in making an orderly transition of the functions performed by the Business Manager.

 

19.                               Non-Solicitation.  Except as otherwise provided in Section 10 hereof, during the period commencing on the date on which this Agreement is entered into and ending one year following the termination of this Agreement, the Company shall not, without the Business Manager’s prior written consent, directly or indirectly: (i) solicit, induce, or encourage any person, including any Key Person, to leave the employment or other service of the Business Manager or any of its Affiliates to become employed by the Company or any of its subsidiaries; or (ii) hire or offer to hire, on behalf of the Company or any other Person, firm, corporation or other business organization, any employee of the Business Manager or any of its Affiliates, including any Key Person.  Further, except as otherwise provided in Section 10 hereof, with respect to any person who left the employment of the Business Manager or any of its Affiliates (x) during the term of this Agreement or (y) within six months immediately after the termination of this Agreement, the Company shall not, without the Business Manager’s prior written consent, directly or indirectly hire or offer to hire on behalf of the Company or any other Person, firm, corporation or other business organization, that person during the six months immediately following his or her cessation of employment.

 

20.                               Tradename and Marks.  Concurrent with executing this Agreement, the Company will enter into a license agreement granting the Company the right, subject to the terms and conditions of license agreement, to use the “Inland” name and marks.

 

21.                               Amendments. This Agreement shall not be amended, changed, modified or terminated, or the obligations hereunder 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 in Section 10 of this Agreement.

 

22.                               Successors and Assigns. This Agreement shall inure to the benefit of, and shall bind, any successors or assigns of the parties hereto.

 

23.                               Governing Law.  The provisions of this Agreement shall be governed, construed and interpreted in accordance with the internal laws of the State of Illinois without regard to its conflicts of law principles.

 

24.                               Liability and Indemnification.

 

(a)                                 The Company shall indemnify the Business Manager and its officers, directors, employees and agents (individually an “Indemnitee,” collectively the “Indemnitees”) to the same extent as the Company may indemnify its officers, directors and employees under its Charter and bylaws so long as:

 

(i)                                     the Board of Directors has determined, in good faith, that the course of conduct that caused the loss, liability or expense was in the best interests of the Company;

 

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(ii)                                  the Indemnitee was acting on behalf of, or performing services on the part of, the Company;

 

(iii)                               the liability or loss was not the result of negligence or misconduct on the part of the Indemnitee; and

 

(iv)                              any amounts payable to the Indemnitee are paid only out of the Company’s net assets and not from any personal assets of any Stockholder.

 

(b)                                 The Company shall not indemnify any Indemnitee seeking indemnification for losses, liabilities or expenses arising from, or out of, an alleged violation of federal or state securities laws (“Securities Claims”) unless one or more of the following conditions are met:

 

(i)                                     there has been a successful adjudication for the Indemnitee on the merits of each count involving alleged material Securities Claims as to such Indemnitee;

 

(ii)                                  the Securities Claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to such Indemnitee; or

 

(iii)                               a court of competent jurisdiction approves a settlement of the Securities Claims and finds that indemnification for the costs of 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 of the published opinions of any state securities regulatory authority in which securities of the Company were offered and sold as to indemnification for Securities Claims.

 

(c)                                  The Company shall advance amounts to Indemnitees 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 Indemnitee for or on behalf of the Company;

 

(ii)                                  the legal action is initiated by a third party who is not a Stockholder or the legal action is initiated by a Stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves advancement; and

 

(iii)                               the Indemnitee receiving advances undertakes in writing to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which the party is found not to be entitled to indemnification.

 

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25.                                 Notices.  All notices, requests or demands to be given under this Agreement from one party to the other (collectively, “Notices” and individually a “Notice”) shall be in writing and shall be given by personal delivery, or by overnight courier service for next Business Day delivery at the other party’s address set forth below, or by telecopy transmission at the other party’s facsimile telephone number set forth below.  Notices given by personal delivery (i.e., by the sending party or a messenger) shall be deemed given on the date of delivery. Notices given by overnight courier service shall be deemed given upon deposit with the overnight courier service and Notices given by telecopy transmission shall be deemed given on the date of transmission provided such transmission is completed by 5:00 p.m. (sending party’s local time) on a Business Day, otherwise such delivery shall be deemed to occur on the next succeeding Business Day. If any party’s address is a business, receipt, or the refusal to accept delivery, by a receptionist or by any Person in the employ of such party, shall be deemed actual receipt by the party of Notices. Notices may be issued by an attorney for a party and in such case such Notices shall be deemed given by such party.  The parties’ addresses are as follows:

 

	
If to the Company:
    	
 
    	
Inland   Real Estate Income Trust, Inc.
    
	
 
    	
 
    	
2901   Butterfield Road
    
	
 
    	
 
    	
Oak   Brook, IL 60523
    
	
 
    	
 
    	
Attention:
    	
Ms. JoAnn   M. McGuinness
    
	
 
    	
 
    	
Telephone:
    	
(630)   218-8000
    
	
 
    	
 
    	
Facsimile:
    	
(630)   218-2218
    
	
 
    	
 
    	
 
    	
 
    
	
If to the Business Manager:
    	
 
    	
IREIT   Business Manager & Advisor Inc.
    
	
 
    	
 
    	
2901   Butterfield Road
    
	
 
    	
 
    	
Oak   Brook, IL 60523
    
	
 
    	
 
    	
Attention:
    	
Ms. Roberta   S. Matlin
    
	
 
    	
 
    	
Telephone:
    	
(630)   218-8000
    
	
 
    	
 
    	
Facsimile:
    	
(630)   218-4955
    

 

Any 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 Relationship to the Company and to the Company’s Stockholders. The Company and the Business Manager recognize that their relationship is subject to various conflicts of interest. The Business Manager, on behalf of itself and its Affiliates, acknowledges that the Business Manager has a fiduciary relationship to the Company and to the Stockholders. The Business Manager, on behalf of itself and its Affiliates, shall endeavor to balance the interests of the Company with the interests of the Business Manager and its Affiliates in making any determination where a conflict of interest exists between the Company and the Business Manager or its Affiliates.

 

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.

 

[Remainder of this page intentionally left blank]

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

 

	
COMPANY:
    	
BUSINESS   MANAGER:
    
	
 
    	
 
    
	
INLAND   REAL ESTATE INCOME TRUST, INC.
    	
IREIT   BUSINESS MANAGER & ADVISOR INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
Name:
    	
JoAnn   M. McGuinness
    	
 
    	
Name:
    	
Roberta   S. Matlin
    
	
Its:
    	
President
    	
 
    	
Its:
    	
Vice   President
    

 

Signature Page — Business Management Agreement

 

 

Schedule 2(t)

 

The Business Manager shall enter into the Service Provider Agreements with certain Affiliates of the Sponsor, as summarized below (as used in this Schedule 2(t), the “Service Providers”), to arrange for the services and licenses to be provided by the Business Manager under the Agreement, as summarized below.

 

·                                          Communications Services.  Inland Communications, Inc. will provide marketing, communications and media relations services, including designing and placing advertisements, editing marketing materials, preparing and reviewing press releases, distributing certain investor communications and maintaining branding standards.

 

·                                          Computer Services.   Inland Computer Services, Inc., or “ICS,” will provide data processing, computer equipment and support services and other information technology services, including custom application, development and programming, support and troubleshooting, data storage and backup, email services, printing services and networking services, including Internet access.  ICS will be reimbursed for all direct costs incurred by, and reasonable expenses paid by, ICS in providing computer services, including programming and consulting time, printing costs and usage charges, equipment rentals and computer usage.

 

·                                          Insurance and Risk Management Services.  Inland Risk and Insurance Management Services, Inc., or “IRIM,” will provide insurance and risk management services, including negotiating and obtaining insurance policies, managing and settling claims and reviewing and monitoring the Company’s insurance policies.  IRIM will receive a portion of commissions paid by insurance companies to third party brokers for placing insurance policies for the Company.  So long as IRIM receives commissions in an amount sufficient to cover operating expenses, the Company will not pay any fees or reimbursements for the services provided by IRIM.

 

·                                          Institutional Investor Relationship Services. Inland Institutional Capital Partners Corporation, or “ICAP,” will provide advice regarding the Company’s current market position, secure institutional investor commitments, and form joint ventures with unaffiliated operating partners, each as requested by the Business Manager.  The Business Manager will pay ICAP any fees or expenses related to the services it provides for the Company. The Company will not reimburse ICAP for any expenses incurred in providing these services.

 

·                                          Investment Advisory Services.  Inland Investment Advisors, Inc., or “Inland Advisors,” will provide investment advisory agreement services.  This agreement will grant Inland Advisors full discretionary authority to invest or reinvest certain of the Company’s assets in securities of publicly traded and privately held entities, and will give Inland Advisors the power to act as the Company’s proxy and attorney-in-fact to vote, tender or direct the voting or tendering of these securities.  The Business Manager will assign to Inland Advisors any portion of

 

 

the annual business management fee that it earns on the Company’s investments in securities. The Company will not reimburse Inland Advisors for any expenses incurred in providing these services.

 

·                                          Mortgage Placement Services.  Inland Mortgage Brokerage Corporation, or “IMBC,” and Inland Commercial Mortgage Corporation, or “ICMC,” will place mortgages for the Company, as requested by the Business Manager.

 

·                                          Mortgage Servicing.  Inland Mortgage Servicing Corporation, or “IMSC,” will service mortgages for the Company, as requested by the Business Manager.

 

·                                          Office Services.  Inland Office Services, Inc., or “IOS,” will provide office and administrative services, including purchasing and maintaining office supplies, office equipment and furniture, installing and maintaining telephones, maintaining security, providing mailroom, courier and switchboard services and procurement services.  IOS will negotiate and manage contract programs including but not limited to business travel, cellular phone services and shipping services.

 

·                                          Personnel Services.  Inland Human Resource Services, Inc. will provide personnel services, including pre-employment services, new hire services, human resources, benefit administration and payroll and tax administration.

 

·                                          Property Tax Services.  Investors Property Tax Services, Inc. will provide property tax services, including tax reduction, such as monitoring properties and seeking ways to lower assessed valuations, and tax administration, such as coordinating payment of real estate taxes.

 

·                                          Software License.   ICS will grant the Business Manager a non-exclusive and royalty-free right and license to use and copy software owned by ICS and to use certain third party software according to the terms of the applicable third party licenses to ICS, all in connection with the Business Manager’s obligations under the Agreement.  ICS will provide the Business Manager with all upgrades to the licensed software, as available.

 

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