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EXHIBIT 10.5
ADVISORY AGREEMENT
THIS AGREEMENT is made this [__] day of [________], 1997 between FRANKLIN
FINANCE CORPORATION, a Michigan corporation (the "Company"), and FRANKLIN BANK,
N.A., a national bank (the "Advisor"). Capitalized terms used herein shall
have the meanings set forth in Section 1 of this Agreement.
WHEREAS, the Company intends to qualify as a "real estate investment
trust" ("REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, the Company desires to avail itself of the experience and
assistance of the Advisor and to have the Advisor undertake, on the Company's
behalf, the duties and responsibilities hereinafter set forth, subject to the
control and supervision of the Board of Directors of the Company (the "Board of
Directors") as provided for herein; and
WHEREAS, the Advisor desires to render such services for the Company
subject to the control and supervision of the Board of Directors, on the terms
and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the respective meanings set forth below:
"Advisor" has the meaning set forth in the forepart of this Agreement.
"Advisor Termination Date" means the date on which this Agreement
terminates.
"Agreement" means this Advisory Agreement, as amended, modified and
supplemented from time to time.
"Board of Directors" has the meaning set forth in the forepart of this
Agreement.
"Code" has the meaning set forth in the forepart of this Agreement.
"Company" has the meaning set forth in the forepart of this Agreement.
"Gross Mortgage Assets" means for any month the weighted average book
value of the real estate mortgage assets held by the Company, before reserves
for depreciation or bad debts or other similar noncash reserves, computed at
the end of such month.
"Independent Directors" means the members of the Board of Directors of the
Company who are either (i) not current officers or employees of the Company
(except as set forth in (iii) below), and not current directors, officers or
employees of the Advisor or any affiliate of the Advisor other than the
Company; (ii) owners of not more than one percent of the outstanding
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common stock of the Advisor; or (iii) persons elected by the holders of the
preferred stock of the Company.
"Operating Expenses" for any period means all of the operating expenses of
the Company (with the exception of those expenses to be borne by the Advisor in
accordance with Section 4 hereof), including without limitation the following:
(a) interest, taxes and other expenses incurred in connection
with the mortgage assets of the Company;
(b) expenses related to the officers, directors and employees of
the Company, including without limitation any fees or expenses of
the directors;
(c) fees and expenses payable to accountants, appraisers,
auditors, consultants, attorneys, collection and paying agents and
all other Persons who contract with or are retained by the Company
or by the Advisor on behalf of the Company;
(d) legal and other expenses incurred in connection with advice
concerning, obtaining or maintaining the Company's status as a REIT,
the determination of the Company's taxable income, any formal or
informal administrative action or legal proceedings which involve a
challenge to the REIT status of the Company or any claim that the
activities of the Company, any member of the Board of Directors or
any officer were improper;
(e) expenses relating to communications and reports to
stockholders of the Company, including without limitation the costs
of preparing, printing, duplicating and mailing the certificates for
the stock of the Company, proxy solicitation materials and reports
to stockholders, and the costs of arranging meetings of
stockholders;
(f) the costs of insurance described in Section 2 hereof,
including directors and officers liability insurance covering the
directors and officers of the Company;
(g) expenses relating to the acquisition, disposition and
ownership of mortgage assets, including without limitation and to
the extent not paid by others, legal fees and other expenses for
professional services and fees;
(h) expenses connected with the payments of dividends or interest
or distributions in cash or any other form made or caused to be made
by the Board of Directors to the stockholders of the Company;
(i) expenses connected with any office or office facilities
maintained by the Company separate from the office of the Advisor,
including without limitation rent, telephone, utilities, office
furniture and equipment and machinery; and
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(j) other miscellaneous expenses of the Company which are not
expenses of the Advisor under Section 4.
"Person" means and includes individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
limited liability companies, joint ventures, associations, consortia,
companies, trusts, banks, savings institutions, trust companies, land trusts,
common law trusts, business trusts or other entities, governments and agencies
and political subdivisions thereof.
"REIT" has the meaning set forth in the forepart of this Agreement.
SECTION 2. Duties of Advisor. The Advisor shall consult with the Board of
Directors and the officers of the Company and shall, at the request of the
Board of Directors or the officers of the Company, furnish advice and
recommendations with respect to all aspects of the business and affairs of the
Company. Subject to the control and discretion and at the request of the Board
of Directors, the Advisor shall:
(a) administer the day-to-day operations and affairs of the
Company, including without limitation the performance or supervision
of the functions described in this Section 2;
(b) monitor the credit quality of the mortgage loans and other
real estate mortgage assets held by the Company;
(c) advise the Company with respect to the acquisition,
management, financing, disposition of the Company's mortgage loans
and other real estate mortgage assets;
(d) represent the Company in its day-to-day dealings with Persons
with whom the Company interacts, including without limitation
stockholders of the Company, transfer agent, consultants,
accountants, attorneys, servicers of the Company's mortgage loans,
custodians, insurers and banks;
(e) establish and provide necessary services for the Company,
including executive, administrative, accounting, stockholder
relations, secretarial, recordkeeping, copying, telephone, mailing
and distribution facilities;
(f) provide the Company with office space, conference room
facilities, office equipment and personnel necessary for the
services to be performed by the Advisor hereunder;
(g) arrange, schedule and coordinate the regular and special
matters of the Board of Directors required for the conduct of the
affairs of the Company or for timely action on any matters the
Company is required to act upon and implement all decisions of the
Board of Directors, unless otherwise instructed, with regard to the
Company and its assets;
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(h) maintain communications and relations with the stockholders
of the Company, including, but not limited to, responding to
inquiries, proxy solicitations, providing reports to stockholders
and arranging and coordinating all meetings of stockholders;
(i) arrange for the investment and management of any short-term
investments of the Company;
(j) arrange for the services of third parties to collect and
distribute funds of the Company and to perform such functions as the
Board of Directors shall from time to time require;
(k) monitor and supervise the performance of all parties who have
contracts to perform services for the Company, provided that the
Advisor shall have no duty to assume the obligations or guarantee
the performance of such parties under such contracts;
(l) establish and maintain such bank accounts in the name of the
Company as may be required by the Company and approved by the Board
of Directors and ensure that all funds collected by the Advisor in
the name or on behalf of the Company shall be held in trust and
shall not be commingled with the Advisor's own funds or accounts;
(m) make payment on behalf of the Company of all Operating
Expenses;
(n) arrange for the execution and delivery of such documents and
instruments by the officers of the Company as may be required in
order to perform the functions herein described and to take any
other required action;
(o) arrange for insurance for the Company including liability
insurance, errors and omissions policies and officers and directors
policies which shall cover and insure the Company, members of the
Board of Directors and the officers of the Company in amounts and
with deductibles and insurers approved by the Board of Directors;
(p) maintain proper books and records of the Company's affairs
and furnish or cause to be furnished to the Board of Directors such
periodic reports and accounting information as may be required from
time to time by the Board of Directors, including, but not limited
to quarterly reports of all income and expenses of and distribution
of the Company;
(q) consult and work with legal counsel for the Company in
implementing Company decisions and undertaking measures consistent
with all pertinent Federal, state and local laws and rules or
regulations of governmental or quasi-governmental agencies,
including, but not limited to, Federal and state securities laws,
the Code, as it relates to the Company's qualification as a REIT,
and the regulations promulgated under each of the foregoing;
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(r) consult and work with accountants for the Company in
connection with the preparation of financial statements, annual
reports and tax returns;
(s) arrange for an annual audit of the books and records of the
Company by the accounting firm designated for such purposes by the
Board of Directors;
(t) prepare and distribute in consultation with the accountants
for the Company, annual reports to stockholders which will contain
audited financial statements;
(u) furnish reports to the Board of Directors and provide
research, economical and statistical data in connection with the
Company's investments; and
(v) as reasonably requested by the Company, make reports to the
Company of its performance of the foregoing services and furnish
advice and recommendations with respect to other aspects of the
business of the Company.
SECTION 3. Compensation. The Company shall pay to the Advisor, for
services rendered by the Advisor hereunder, a management fee payable monthly in
arrears in an amount equal to $10,416.67.
SECTION 4. Expenses of the Advisor.
(a) Without regard to the compensation received pursuant to
Section 3, the Advisor will bear the following expenses:
(i) employment expenses of the personnel employed by
the Advisor, including without limitation salaries, wages,
payroll taxes and the cost of employee benefit plans; and
(ii) rent, telephone equipment, utilities, office
furniture and equipment and machinery and other office
expenses of the Advisor incurred in connection with the
maintenance of any office facility of the Advisor.
(b) The Company shall reimburse the Advisor within 30 days of a
written request by the Advisor, for any Operating Expenses paid or
incurred by the Advisor on behalf of the Company.
SECTION 5. Records. The Advisor shall maintain appropriate books of
account and records relating to services performed hereunder, and such books of
account an records shall be accessible for inspection by the Board of Directors
or representatives of the Company at all times.
SECTION 6. REIT Qualification and Compliance. The Advisor shall consult
and work with the Company's legal and tax counsel in maintaining the Company's
qualification as a REIT. Notwithstanding any other provisions of this Agreement
to the contrary, the Advisor shall refrain from any action which, in its
reasonable judgment or in the judgment of the Board of Directors
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(of which the Advisor has received written notice), would adversely affect the
qualification of the Company as a REIT or which would violate any law, rule or
regulation of any governmental body or agency having jurisdiction over the
Company or its securities, or which would otherwise not be permitted by the
certificate of incorporation or by-laws of the Company. Furthermore, the
Advisor shall take any action which, in its judgment or the judgment of the
Board of Directors (of which the Advisor has received written notice), may be
necessary to maintain the qualification of the Company as a REIT or prevent the
violation of any law or regulation of any governmental body or agency having
jurisdiction over the Company or its securities.
SECTION 7. Term; Termination. This Agreement shall be in full force and
effect for a term beginning on the date hereof with an initial term of five
years, and will be renewed automatically for additional five year periods
unless the Company delivers a notice of nonrenewal to the Advisor not less than
90 days prior to the expiration of the initial term of this Agreement or 90
days prior to the expiration of any renewal term. Notwithstanding the
foregoing, at any time after the initial term, the Company may terminate this
Agreement at any time upon 90 days' prior notice.
SECTION 8. Other Activities of the Advisor.
(a) Nothing herein contained shall prevent the Advisor, an
affiliate of the Advisor or an officer, a director, employee or
stockholder of the Advisor from engaging in any activity, including
without limitation originating, purchasing and managing mortgage
loans and other real estate assets, rendering of services and
investment advice with respect to real estate investment
opportunities to any other Person (including other REITs) and
managing other investments (including the investments of the Advisor
and its affiliates).
(b) Directors, officers, stockholders, employees and agents of
the Advisor or of the affiliates of the Advisor may serve as
directors, officers, employees or agents of the Company but shall
receive no compensation (other than reimbursement for expenses) from
the Company for such service.
SECTION 9. Binding Effect; Assignment. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors and assigns. Neither party may assign this Agreement or any of its
respective rights hereunder (other than an assignment to a successor
organization which acquires substantially all of the property of such party or,
in the case of the Advisor, to an affiliate of the Advisor) without the prior
written consent of the other party to this Agreement.
SECTION 10. Subcontracting. The Advisor may at any time subcontract all
or a portion of its obligations under this Agreement to any affiliate of the
Advisor without the consent of the Company or if no affiliate of the Advisor is
engaged in the business of managing mortgage assets to an unaffiliated third
party with the approval of a majority of the Board of Directors as well as a
majority of the Independent Directors. Notwithstanding the foregoing, the
Advisor will not, in
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connection with subcontracting any of its obligations under this Agreement, be
relieved or discharged in any respect from its obligations under this
Agreement.
SECTION 11. Liability and Indemnity of the Advisor. The Advisor assumes
no responsibilities under this Agreement other than to perform the services
called for hereunder in good faith. Neither the Advisor nor any of its
affiliates, stockholders, directors, officers or employees will have any
liability to the Company, or stockholders of the Company, or others except by
reason of acts or omissions constituting gross negligence or willful breach of
any of its material obligations under this agreement. The Company shall
indemnify and reimburse (if necessary) the Advisor, its stockholders,
directors, officers, employees and agents for any and all expenses (including
without limitation attorneys' fees), losses, damages, liabilities, demands and
charges of any nature whatsoever in respect of or arising from any acts or
omissions by the Advisor pursuant to this Agreement, provided that the conduct
against which the claim is made was determined by such person, in good faith,
to be in the best interest of the Company and was not the result of gross
negligence by such person or willful breach of any of such person's material
obligations by such person. The Advisor agrees that any such indemnification is
recoverable only from the assets of the Company and not from the stockholders.
SECTION 12. Action Upon Notice of Non-Renewal or Termination. Forthwith
upon giving of notice of non-renewal of this Agreement by the Company or of
termination of this Agreement by the Company, the Advisor shall not be entitled
to compensation after the Advisor Termination Date for further services under
this Agreement but shall be paid all compensation accruing to the Advisor
Termination Date and shall be reimbursed for all expenses of the Company paid
or incurred by the Advisor as of the Advisor Termination Date which are
reimbursable by the Company under this Agreement. The Advisor shall promptly
after the Advisor Termination Date:
(i) deliver to the Company all assets and documents
of the Company then in the custody of the Advisor; and
(ii) cooperate with the Company and take all
reasonable steps requested to assist the Board of Directors in
making an orderly transfer of the administrative functions of
the Company.
SECTION 13. No Joint Venture or Partnership. Nothing in this Agreement
shall be deemed to create a partnership or joint venture between the parties,
whether for purposes of taxation or otherwise.
SECTION 14. Notices. Unless expressly provided otherwise herein, all
notices, request, demands and other communications required or permitted under
this Agreement shall be in writing and shall be made by hand delivery,
certified mail, overnight courier service, telex or telecopier. Any notice
shall be duly addressed to the parties as follows:
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If to the Company:
Franklin Finance Corporation
00000 Xxxx Xxxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Chairman
If to the Advisor:
Franklin Bank, N.A.
00000 Xxxx Xxxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Chairman
Either party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this Section 14 for the giving of notice.
SECTION 15. Severability. If any term or provision of this Agreement or
the application thereof with respect to any Person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement, or
the application of that term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and be enforced to the fullest extent permitted by law.
SECTION 16. Governing Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the
State of Michigan.
SECTION 17. Amendments. This Agreement shall not be amended changed,
modified, terminated or discharged in whole or in part except by an instrument
in writing signed by both parties hereto or their respective successors or
assigns, or otherwise as provided herein.
SECTION 18. Headings. The section headings herein have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first above written.
FRANKLIN FINANCE CORPORATION
By: _____________________________________
Name:
Title:
FRANKLIN BANK, N.A.
By: ______________________________________
Name:
Title:
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