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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; and
(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.
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 Advisor shall bear all expenses
attributable to the management services to be provided by the Advisor to the
Company hereunder, without reimbursement from the Company, except as otherwise
stated herein. The Company shall reimburse the Advisor for all direct fees and
expenses incurred and paid by the Advisor to third parties in performing its
obligations hereunder.
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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%) of the aggregate capitalized cost (excluding
accumulated depreciation) of all assets owned by the Company's portfolio
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 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 as
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compensation for services rendered by the Advisor in connection with the
acquisition of Properties by the Company an incentive acquisition fee (the
"Incentive Acquisition Fee") based on the acquisition cost, exclusive of any
Incentive Acquisition Fee (the "Acquisition Cost") of each Property identified
by the Advisor and acquired by the Company during the term of this Agreement.
The Incentive Acquisition Fee shall be in an amount equal to a percentage of the
Acquisition Cost (the "Acquisition Fee Percentage") based upon whether the
annual straight line rent on the Lease for which the Acquisition Fee is payable
divided by the Acquisition Cost excceds, if at all, the sums, specified on
Exhibit A of (i) the average yield on 30 year U.S. Treasury obligations for the
30 days prior to the date of commitment (the "T - Rate") plus (ii) the "Basis
Point Factor" as set forth on Exhibit A to this Agreement (the "Benchmark
Rate"); and provided further that for purposes of this Agreement the annual
straight line rent for any Lease which is subject to increases based upon the
Consumer Price Index shall include assumed increases equal to the greater of the
average of the CPI for the 3 years prior to the date of acquisition or two
percent (2%). The Incentive Acquisition Fee shall be paid by the Company on the
date of the acquisition of any Property for which an Incentive Acquisition
Fee is payable under this Agreement. The Incentive Acquisition Fee shall be
refunded to the Company by the Advisor in the event that any rent due within
the first twelve months under the Lease for which the Incentive Acqusition
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Fee is paid is delinquent for more than 90 days and such delinquency is not
therafter cured.
(c) Nothing in this Agreement shall preclude or restrict the Company
from the direct acquisition of Properties or the negotiation and execution of
Leases without the assistance of the Advisor, and the Advisor shall not be
entitled to the Incentive Acquisition Fee for any Properties so acquired by the
Company.
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. Niether 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 to owe a fiduciary duty to the Company. The Advisor
shall have no liability to the Company 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 its 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, Inc., a
Michigan corporation. 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 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.
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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