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EXHIBIT 10.6
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ("Agreement"), dated as of August __,
1997, by and between CAPTEC NET LEASE REALTY, INC., a Delaware corporation (the
"Company"), and CAPTEC NET LEASE REALTY ADVISORS, INC., a Delaware corporation
(the "Advisor").
WHEREAS, the Company is in the business of acquiring,
developing, managing, owning and disposing of income producing commercial real
properties (the "Properties") and leasing the Properties to qualified lessees
("the "Lessees") pursuant to long term net leases (the "Leases"); and
WHEREAS, the Company intends to qualify as a Real Estate
Investment Trust (a"REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"); and
WHEREAS, the Company desires to retain the services of the
Advisor with respect to the origination, acquisition, development, leasing,
management, ownership and disposition of the Properties, and to provide certain
services to the Company in connection with such Properties and Leases on the
terms set forth herein and consistent with the Company's initial and continued
qualification and operation in accordance with all requirements applicable to a
REIT; and
WHEREAS, the Advisor is willing to provide such services to
the Company on the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth in this Agreement, and for other good
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and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. APPOINTMENT OF ADVISOR. The Company hereby
retains the Advisor on the terms hereinafter set forth, and the
Advisor hereby accepts such appointment.
2. DUTIES OF ADVISOR. The Advisor shall:
(i) identify and negotiate the acquisition, on terms
acceptable to the Company, of Properties which meet the
criteria established by the Company's Board of Directors with
respect to the kind and type of Properties to be acquired by
the Company;
(ii) negotiate Leases or such other agreements for
the development or ownership of the Properties which meet the
criteria established by the Board of Directors;
(iii) review and analyze the creditworthiness and
business prospects of prospective Lessees;
(iv) perform all necessary and reasonable
administrative and "back office" functions with respect to the
Properties and the Leases;
(v) advise the Company in connection with its
financing strategy including assisting the Company in the
negotiation of any borrowing which the Company may seek to
incur;
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(vi) provide to the Company underwriting services and
analysis with respect to restaurant, retail and other chain
concepts and businesses.
(vii) monitor and enforce compliance with the terms
of the Leases;
(viii) maintain or cause to be maintained, on behalf
of the Company, such books and records of account concerning
the Properties and the Leases in accordance with generally
accepted accounting practices with respect to the Properties
and the Leases;
(ix) take all actions necessary to enable the Company
to comply with and abide by in all material respects with all
applicable laws and regulations;
(x) assist the Company in preparing reports to, and
meeting materials for, the Company and its stockholders;
(xi) prepare and deliver to the Company quarterly
financial statements within forty-five (45) days of the end of
each fiscal quarter, year end financial statements within
ninety (90) days of the end of the Company's fiscal year and
such schedules, reports summaries and other information
regarding the Company's portfolio as may be requested by the
Company from time to time;
(xii) take such other actions in connection with
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the Company's acquisition of Properties, and origination,
ownership and disposition of Leases, as are consistent with
the Company's investment criteria as established by the Board
of Directors;
(xiii) conduct legal and business diligence and
oversee the preparation of all legal documentation for the
development and leasing of all Properties;
(xiv) identify Properties for sale consistent with
the Company's investment objectives and prevailing economic
conditions;
(xv) take such other actions and render such other
services as may reasonably be requested by the Company
consistent with the purpose of this Agreement; and
(xvi) perform any and all of the foregoing as may be
requested by the Company, for each of Captec Franchise Capital
Partners L.P., III, a Delaware limited partnership and/or
Captec Franchise Capital Partners L.P., IV, a Delaware
limited partnership (each an "Affiliated Partnership" and
collectively the "Affiliated Partnerships") beginning at such
time as the Company becomes the general partner of that
Affiliated Partnership.
3. ADVISOR'S RESOURCES. The Advisor shall, at its expense,
maintain such office space, facilities, equipment and personnel trained and
experienced in the business of acquiring, owning, management and net leasing
sufficient to enable the Advisor to fulfill its obligations under this
Agreement.
4. PAYMENT OF EXPENSES. The Company shall reimburse the
Advisor for all amounts paid by the Advisor to third parties in performing its
obligations hereunder; provided that such expenses have not been reimbursed to
the Advisor through the Incentive Fee pursuant to Section 5(b).
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5. COMPENSATION.
(a) The Company shall pay to the Advisor as compensation for
the ongoing management services provided by the Advisor to the Company under
this Agreement an annual fee (the "Management Fee") equal to the lesser of (i)
six-tenths of one percent (0.6%) per annum of the aggregate capitalized cost
(excluding accumulated depreciation) of all portfolio assets owned by the
Company including, but not limited to, all Properties, mortgage loans,
leasehold mortgages, secured equipment leases and joint venture and partnership
interests (the "Portfolio Value") or (ii) five percent (5.0%) of the Company's
total revenue computed in accordance with generally accepted accounting
practices (the "Total Revenues"). The Management Fee shall be paid on the first
day of each of January, April, July and October, and shall be calculated on the
Portfolio Value as of the last day of the prior quarter or the Total Revenues
of the Company for the prior quarter as stated in, or derived from, the
Company's most recent financial information (regardless of whether audited or
unaudited) filed by the Company with the United States Securities and Exchange
Commission (the "Most Recent Financial Report"). The first Management Fee
shall be payable on January 1, 1998 and calculated based upon the Portfolio
Value or Annual Revenues as of December 31, 1997, and shall be prorated for
that portion of the fiscal quarter for which this Agreement is in effect.
(b) The Company shall pay to the Advisor
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an incentive fee (the "Incentive Fee") in an amount equal to (i) 15% of the
result of multiplying (A) the amount by which the actual increase in Funds From
Operations ("FFO") per share, if any (the "Actual Increase") for each calendar
quarter (each a "Measurement Quarter") as compared to FFO per share for the
calendar quarter immediately preceding the Measurement Quarter (the "Prior
Quarter"), exceeds an increase of 7% per annum (the "Assumed Increase") in FFO
for the Prior Quarter by (B) weighted average shares outstanding for the
Measurement Quarter, and (ii) the amount of all acquisition-related costs
incurred by the Advisor and those parties, including Captec Financial Group,
Inc. ("Captec Financial"), relied upon by the Advisor pursuant to Section 12 of
this Agreement which costs shall not otherwise have been reimbursed through
Lessee committment fees or otherwise, including, but not be limited to (a)
pro-rated costs (including salaries, commissions, bonuses and benefits) of
personnel employed by the Advisor and Captec Financial and who are involved in
the acquisition, underwriting, documentation, database management and
administrative process related to the acquisition of Properties which are
identified by the Advisor and acquired by the Company or an Affiliated
Partnership during the term of this Agreement (the "Acquisition Process"); (b)
all costs of fees, taxes and assessments applicable to the Acquisition Process;
(c) travel expenses; (d) marketing and advertising expenses; and (e) other
general and administrative expenses, including expenses for administrative
personnel related to the Acquisition Process. The Assumed Increase shall be
calculated by multiplying FFO per share for the Prior Quarter by 1.0175. The
Actual Increase shall be calculated by subtracting FFO per share for the Prior
Quarter from FFO per share for the Measurement Quarter. For purposes of
calculating the Incentive Fee FFO per share shall be derived from FFO per share
for each Measurement Quarter and each Prior Quarter as reported on the Most
Recent Financial Report stating FFO per share for the required Measurement
Quarter or Prior Quarter. The Incentive Fee shall be paid no later than the
earlier of the date the Company files or is required by law to file the Most
Recent Financial Report for the Measurement Quarter.
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(c) Notwithstanding anything herein to the contrary, the Incentive
Fee and the acquisition cost reimbursement for any Measurement Quarter shall not
exceed 3.0% of the acquisition cost (which shall exclude any Incentive Fee) of
Properties identified by the Advisor and acquired by the Company or an
Affiliated Partnership during the Measurement Quarter for which the Incentive
Fee is paid.
(d) Notwithstanding anything herein to the contrary, in the event the
aggregate Incentive Fees payable to the Advisor as calculated pursuant to
Section 5(b) in any fiscal year exceeds the Incentive Fee which would have been
payable calculated on an annual basis for the current fiscal year to the
immediately preceding fiscal year ("Annual Fee") and without regard to,
separate quarterly results, the excess of actual the aggregate Incentive Fees
for the fiscal year over the Annual Fee will be offset against any Incentive Fee
which may subsequently become payable to the Advisor.
6. REIT STATUS. Notwithstanding anything in this Agreement to
the contrary, the Advisor shall not take any action which would (a) adversely
affect the status of the Company as a REIT, (b) subject the Company to
regulation under the Investment Company Act of 1940, or (c) violate any law,
rule, regulation or policy of any governmental body or agency having
jurisdiction over the Company or otherwise prohibited by the Company's
Certificate of Incorporation, its Bylaws or resolutions of the Board of
Directors all as in effect from time to time. In the event the Company
authorizes or directs the Advisor to take any actions which, in the judgment of
the Advisor would violate any of the foregoing, the Advisor shall so advise the
Company in writing specifying the basis for its position and shall take no
further action with respect to such matters unless and until it receives
clarification and instructions from the Board of Directors.
7. LIMITATION OF LIABILITY AND INDEMNIFICATION OF
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ADVISOR. Neither the Advisor nor any person or entity relied on by the Advisor
pursuant to the express authority of Section 12 hereof shall be deemed to be a
fiduciary of the Company or either Affiliated Partnership or to owe a fiduciary
duty to the Company or either Affiliated Partnership. The Advisor shall have no
liability to the Company or either Affiliated Partnership based upon or arising
out of any action or decision by the Board of Directors, or any direct or
indirect, foreseeable or unforeseeable consequence thereof, in following or
declining to follow any advice or recommendation of the Advisor. The Company
shall indemnify and hold harmless the Advisor and its Affiliates, including,
but not limited to, any person or entity relied upon by the Advisor pursuant to
the express authority granted in Section 12, and their respective officers,
directors, partners and employees from and against any and all liabilities,
claims, damages or losses arising in the performance of their duties in good
faith hereunder, and related expenses which shall include reasonable attorneys
fees, subject only to such limitations as may be imposed on such
indemnification by the Certificate of Incorporation, the Bylaws or the laws of
the State of Delaware.
8. INDEMNIFICATION BY ADVISOR. The Advisor shall
indemnify and hold harmless the Company and/or either Affiliated Partnership
and their respective officers, directors and employees from and against any and
all liabilities, claims, damages or losses, and related expenses including
reasonable attorney's fees, which arise directly from the fraud, willful
misconduct of the Advisor, or the reckless disregard by
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the Advisor of its responsibilities under this Agreement.
9. BOOKS AND RECORDS. All books and records compiled by the
Advisor in the course of discharging its responsibilities under this Agreement
shall be the property of the Company and shall be delivered by the Advisor to
the Company immediately upon any termination of this Agreement and regardless of
the grounds for such termination (including, but not limited to, a breach by the
Company of this Agreement). The Advisor shall not maintain or assert any lien
agreement or upon any of the books and records and all such books and records
concerning the Properties and/or the Leases.
10. TERM AND TERMINATION.
(a) This Agreement shall become effective on the date hereof
and shall continue on through December 31, 1998 ("Initial Term") and shall be
automatically extended for successive one year terms thereafter without further
action by either the Company or the Advisor unless earlier terminated, as
provided herein. This Agreement shall be automatically renewed for additional
one (1) year terms unless either party gives written notice to the other party
of termination 90 days prior to the expiration of the then current term.
(b) The Company also may, at any time, terminate this
Agreement:
(i) immediately upon providing written notice to
the Advisor if the Advisor is determined by unanimous
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vote of all Directors of the Company, taken after at least
fourteen (14) days prior written notice to the Advisor of such
vote, to have committed an act of actual fraud, willful
malfeasance, gross negligence, violation of applicable law or
reckless disregard of its duties and responsibilities under
this Agreement;
(ii) upon written notice effective immediately, given
not earlier than thirty (30) days after the Advisor shall (A)
authorize or agree to the commencement of a voluntary case or
other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any
bankruptcy, insolvency, receivership or other similar law now
or hereafter in effect or the appointment of a trustee,
receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, (B) make a general
assignment for the benefit of its creditors, or (C) have an
involuntary or other proceeding commenced against it seeking
liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar
law now or thereafter in effect, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a
period exceeding sixty (60) days.
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(c) Upon any termination of this Agreement by the
Company, the Advisor shall, upon the Company's request, cooperate with and
assist the Company in finding a new entity to act as advisor to the Company and
in assisting the Company with the transition process.
11. NOTICES. Any notices, instructions or other
communications required or contemplated by this Agreement shall be deemed to
have been property given and to be effective upon delivery if delivered in
person or sent by telecopier or upon receipt if sent by courier service.
All such communications to the Company shall be addressed as
follows:
Captec Net Lease Realty, Inc.
24 Frank Lloyd Wright Drive
Lobby L, 4th Floor
P.O. Box 544
Ann Arbor, Michigan 48106-0544
Attention: Patrick L. Beach
Telecopier: (313) 994-1376
All such communications to the Advisor shall be addressed as
follows:
Captec Net Lease Realty Advisors, Inc.
24 Frank Lloyd Wright Drive
Lobby L, 4th Floor
P.O. Box 544
Ann Arbor, Michigan 48106-0544
Attention: W. Ross Martin
Telecopier: (313) 994-1376
Either party hereto may designate a different address by
written notice to the other party delivered in accordance with this Section 11.
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12. DELEGATION OF RESPONSIBILITIES. Notwithstanding anything
contained herein to the contrary, the Advisor may delegate any and all of its
responsibilities and obligations under this Agreement to certain affiliates (as
that term is defined by Rule 405 of the United States Securities and Exchange
Commission) including, but not limited to, Captec Financial Group. Any
delegation of responsibilities by the Advisor shall not be inconsistent with
any express instructions of the Board of Directors; shall not cause the
Company or either Affiliated Partnership to incur any financial responsibility
to the delegee (unless expressly authorized by the Company); and shall not
relieve the Advisor of its obligations to the Company with respect to the
responsibilities delegated and with respect to which delegated responsibilities
the Advisor shall remain liable to the Company. Nothing in this Section 12
shall prohibit the Advisor from retaining non-Affiliated third parties to
provide goods and services to the Company or the Advisor in connection with
the services to be provided by the Advisor pursuant to this Agreement.
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan, without regard
to the conflict of laws principals thereof.
14. ENTIRE AGREEMENT. This Agreement reflects the entire
understanding of the parties hereto with respect to the
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subject matter hereof and supersedes and replaces all agreements between the
Company and the Advisor with respect to the subject matter hereof.
15. RELATIONSHIP OF PARTIES. The parties intend that
the Advisor shall act as an independent contractor in performing services for
the Company hereunder. Nothing contained herein is intended to, or shall be
construed to, constitute the Advisor as a partner, joint venturer or agent of
the Company or either Affiliated Partnership.
16. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties to this Agreement and their
respective successors and permitted assigns, and no other person or entity shall
acquire or have any right under, or by virtue of, this Agreement. The Company
shall be entitled to assign this Agreement to any successor to all or
substantially all of its assets rights and/or obligations.
17. AMENDMENT, MODIFICATIONS AND WAIVER. This Agreement
hereto shall not be altered or otherwise amended in any respect, except pursuant
to an instrument in writing signed by the parties hereto. The waiver by a party
of a breach of any provisions of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, and all of
which shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
CAPTEC NET LEASE REALTY, INC.
By: ______________________
Name: Patrick L. Beach
Title: President
CAPTEC NET LEASE REALTY ADVISORS, INC.
By: ________________________
Name: W. Ross Martin
Title: Vice President
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SCHEDULE A
BENCHMARK RATE ACQUISITION FEE %
T - Rate + 300 bps 1.00%
T - Rate + 350 bps 1.50%
T - Rate + 400 bps 2.00%
T - Rate + 450 bps 2.50%
T - Rate + 500 bps 3.00%
T - Rate + 650 bps 3.25%
T - Rate + 700 bps 3.50%
T - Rate + 750 bps 4.00%
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