ADVISORY AGREEMENT
THIS
ADVISORY AGREEMENT (“Agreement”), made as of March 31, 1989, is by and between
NTS MORTGAGE INCOME FUND, a Delaware corporation (the “Fund”), and NTS ADVISORY
CORPORATION, a Delaware corporation (the “Advisor”). All capitalized terms used
herein shall have the meaning ascribed to them in the Fund’s Registration
Statement No 33-25217 dated October 28, 1988 (the “Registration Statement”),
filed with the Securities and Exchange Commission, unless the context otherwise requires.
WITNESSETH:
WHEREAS,
the Fund has filed the Registration Statement, covering its Shares of common stock, par
value $.001 per share, to be offered to the public, and the Fund may thereafter sell
additional securities or otherwise raise additional capital; and
WHEREAS,
the Fund intends to qualify as a “real estate investment trust,” as defined in
the Internal Revenue Code of 1986, as amended (the “Code”), and to invest its
funds in investments permitted by the terms of the Registration Statement and Sections
856-860 of the Code; and
WHEREAS,
the Fund desires to avail itself of the experience, sources of information, advice,
assistance and certain facilities available to the Advisor and to have the Advisor
undertake the duties and responsibilities hereinafter set forth, on behalf of and subject
to the supervision of the Board of Directors (“Directors”) of the Fund, all as
provided herein; and
WHEREAS,
the Advisor is willing to undertake to render such services, subject to the supervision of
the officers of the Fund (“Officers”) and the Directors, on the terms and
conditions hereinafter set forth;
NOW,
THEREFORE, the parties agree as follows:
| 1. |
Appointment.
The Fund hereby appoints the Advisor to serve as its investment and
management advisor on the terms and conditions set forth in this
Agreement, and the Advisor hereby accepts such appointment. |
| 2. |
Duties
of Advisor. The Advisor undertakes to use its best efforts to
present to the Fund real property and mortgage loan investment
opportunities and a continuing and suitable investment program
consistent with the investment policies and objectives of the Fund as
determined and adopted from |
1
| |
time to
time by the Directors. In performance of this undertaking, subject to the supervision of
the Directors and upon their direction, and consistent with the provisions of the
Registration Statement, the Advisor shall pursuant to delegated authority: |
| |
(a) |
obtain
or provide such services as may be required to administer the daily operations
of the Fund; |
| |
(b) |
serve
as the Fund’s investment and financial advisor and provide reports in
connection with the Fund’s portfolio policies and in connection with each of the
Fund’s investments, including, but not limited to, the making of Mortgage Loans and
Real Estate Investments as described in the Registration Statement; |
| |
(c) |
on
behalf of the Fund, investigate, select, retain and conduct relations with such
persons as the Advisor deems necessary to the proper performance of its
obligations hereunder, including but not limited to, consultants, investors,
builders, developers, borrowers, lenders, mortgagors, brokers, accountants,
attorneys, appraisers and others, including its Affiliates; |
| |
(d) |
consult
with the Officers and Directors and assist the Directors in the formulation and
implementation of the Fund’s investment and other policies, and furnish
the Officers and Directors with advice and recommendations with respect to the
making of investments consistent with the investment policies and objectives of
the Fund; |
| |
(e) |
structure
and negotiate the terms of the Mortgage Loans and Real Estate Investments and
obtain all of the requisite elements for approval of investment opportunities
consistent with the investment policies and objectives of the Fund; |
| |
(f) |
obtain
for or provide to the Fund such services as may be required in acquiring,
managing and disposing of investments, including, but not limited to, the
negotiation, making and servicing of Mortgage Loans made by the Fund, the
negotiation and acquisition of Real Property Investments by the Fund,
disbursing and collecting the funds of the Fund, paying the debts and
fulfilling the obligations of the Fund and handling, prosecuting and settling
any claims of the Fund, including foreclosing and otherwise enforcing mortgages
and other liens securing investments, and such other services as the Fund may
require; |
2
| |
(g) |
advise
in connection with negotiations by the Fund with investment banking firms, securities
brokers or dealers and other institutions or investors for public or private sales of
securities of the Fund, or in obtaining investments for the Fund, but in no event in such
a way that the Advisor could be deemed to be acting as a dealer or underwriter as those
terms are defined in the Securities Act of 1933, as amended; |
| |
(h) |
from
time to time, or at any time requested by the Officers and Directors, make
reports to the Officers and Directors of its performance of the foregoing
services; |
| |
(i) |
obtain
current and as-built MAI appraisals for each Real Property Investment and for
each real property which is the security for Mortgage Loans made by the Fund; |
| |
(j) |
do
all things necessary to assure its ability to render the services contemplated
herein, including the providing of office space and office furnishings and
personnel necessary for the performance of the foregoing services as Advisor,
at its own expense; |
| |
(k) |
within
fifteen (15) days after the end of each fiscal quarter of the Fund, submit to
the Directors a statement containing a valuation of the Fund's
assets in a form which is sufficient to permit the Directors to determine
whether the Fund satisfied the requirements of Section 856(c)(5) of the Code as
of the close of such fiscal quarter (the Advisor, in consultation with the
Directors, shall establish appropriate procedures to value the assets of the
Fund and will determine the value of such assets for the purpose of this
subparagraph based upon such procedures); and |
| |
(l) |
within
fifteen (15) days after the end of each fiscal quarter of the Fund, submit to
the Directors a statement of the Fund’s sources of income during such
fiscal quarter and make recommendations concerning changes, if any, in the Fund’s
investments to permit the Fund to satisfy the requirements of Sections
856(c)(2), 856(c)(3) and 856(c)(4) of the Code (such statement of income may be
based upon information supplied by independent contractors of the Fund to the
extent applicable). |
| 3. |
No
Partnership or Joint Venture. The Fund and the Advisor are not
partners or joint venturers with each other and nothing herein shall
be construed so as to make them such partners or joint venturers or
impose any liability as such on either of them or their Affiliates. |
3
| 4. |
REIT
Qualification. Anything else in this Agreement to the contrary
notwithstanding, the Advisor shall use its best efforts to refrain
from taking any action (including, without limitation, the furnishing
or rendering of services to tenants of property or managing or
operating property) which, in its judgment made in good faith and
with the exercise of reasonable care, would: (a) adversely affect the
status of the Fund as a “real estate investment trust” under
the Code and all rules and regulations promulgated thereunder; (b)
violate any law, rule, regulation or statement of policy of any governmental
body or agency having jurisdiction over the Fund or over its
securities of which the Advisor should reasonably be aware; or (c)
otherwise not be permitted by the Fund’s Registration Statement
or Organizational Documents, except if such action shall be ordered
by the Directors, in which event the Advisor shall promptly notify
the Directors of the Advisor’s judgment that such action would
adversely affect the status of the Fund as a “real estate investment
trust” under the Code and shall refrain from taking such action
unless the Advisor receives specific instructions from the Directors
expressly ordering that the action be taken, notwithstanding such
notification by it to the Directors. In such event the Advisor shall
have no liability for acting in accordance with the specific
instructions of the Directors so given. |
| 5. |
Investment
Company Status. Notwithstanding anything else in this Agreement
to the contrary, the Advisor shall use its best efforts to refrain
from any action which, in its judgment, made in good faith and in
the exercise of reasonable care, would cause the Fund to be required
to register as an investment company under the Investment Company Act
of 1940, as amended, except if such action shall be ordered by the
Directors, in which event the Advisor shall promptly notify the
Directors of the Advisor’s judgment that such action might
require such registration and shall refrain from taking such action
unless the Advisor receives specific instructions from the Directors
expressly ordering that the actions be taken, notwithstanding such
notification by it to the Directors. In such event, the Advisor shall
have no liability for acting in accordance with instructions of the
Directors so given. |
| 6. |
Bank
Accounts. The Advisor may establish and maintain one or more bank
accounts in its own name or in the name of the Fund and may collect
and deposit into any such account or accounts, and disburse from any
such account or accounts, any money on behalf of the Fund, under such
terms and conditions as the Directors may approve, provided that no
funds in any |
4
| |
such account
shall be commingled with funds of the Advisor; and the Advisor shall from time to time
render appropriate accounting of such collections and payments to the Directors and to
the auditors of the Fund. |
| 7. |
Information
Furnished to Advisor. The Directors shall at all times keep the
Advisor fully informed with regard to the investment policies of the Fund,
the capitalization policy of the Fund and generally the then-current
intentions of the Directors as to the future activities and
investments of the Fund. The Fund shall furnish the Advisor with a
certified copy of all financial statements, a signed copy of each
report prepared by independent certified public accountants and such
other information with regard to the Fund’s affairs as the
Advisor may from time to time reasonably request. |
| 8. |
Consultation
and Advice. In addition to the services described above, the
Advisor shall consult with the Officers and Directors and shall, at
the request of the Officers and Directors, furnish advice and
recommendations with respect to other aspects of the business and
affairs of the Fund. In general, the Advisor shall inform the
Officers and Directors of any information which comes to its
attention which would or could influence the policies and/or objectives
of the Fund, except to the extent that giving such information would
involve a breach of fiduciary duty. |
| 9. |
Compensation.
The Fund shall pay to the Advisor compensation for its services
hereunder, the following: |
| |
(a) |
Management
Expense Allowance. Relating to goods and materials acquired and
services performed for the Fund in an amount equal to 1% of the Net Assets
of the Fund, per annum, payable quarterly, which 1% figure will be
adjusted annually by a percentage equal to the increase in the Consumer
Price Index for all urban consumers (“CPI-AUC”) — Louisville,
or a comparable Consumers Price Index if it is not available, if any,
subject to the Fund’s Operating Expense limitation. |
| |
(b) |
Real
Estate Management Fee. For property management services on Real Estate
Investments acquired by the Fund equal to fees which are competitive for
similar services in the same not to exceed 5% and 6% of the annual gross
revenues from residential Real Property and commercial Real Property,
respectively, and properties acquired through foreclosure, plus certain
reimbursed expenses, paid monthly. If NTS or an Affiliate does not perform
substantially all of the leasing, releasing and leasing related services
with respect to a property, the fee |
5
| |
|
payable for
that property will be limited to 3% of the gross revenues of the property. A competitive
fee may be paid for the one-time initial rent-up or lease-up of a newly constructed
property {provided such fee is not already included in the purchase price of the
property). In the event industrial or commercial properties are leased on a long-term
(i.e., ten or more years) triple net basis, the management fee will be 1% of the gross
revenues from such property, except for a one-time initial leasing fee equal to 3% of the
total base rents payable for the entire lease term (excluding renewals), which amount
shall be paid in five equal annual installments. |
| |
(c) |
Subordinated
Advisory Fee. For services in connection with the liquidation of
the Fund’s investments, equal to 5% of the Capital Proceeds
remaining after Stockholders have received (i) Capital Proceeds in an
amount equal to 100% of their Original Capital Contributions and (ii)
total distributions from all sources in an amount equal to a 15% per
annum cumulative, non-compounded return on their Adjusted
Contributions, to the extent not already received, beginning on the
Offering Termination Date. |
| 10. |
Operating
Expenses. The annual Operating Expenses of the Fund including
compensation and reimbursement to the Advisor and its Affiliates
relating to the operation of the Fund may not exceed in any fiscal
year the greater of (a) 2% of the Fund’s Average Invested Assets
during such fiscal year or (b) 25% of the Fund’s Net Income
during such fiscal year. The Advisor shall reimburse the Fund, within
60 days after the end of the fiscal year, the amount by which the
aggregate annual Operating Expenses paid or incurred by the Fund exceed the
foregoing limitations. |
| |
The Advisor
will reimburse the Fund the amount, if any, by which the compensation paid by the Fund to
the Advisor pursuant to this Agreement exceeds the amount permitted to be paid by the
Fund to the Advisor pursuant to the guidelines, as applicable from time to time, of the
North American Securities Administrators Association, Inc. |
| 11. |
Other
Activities of the Advisor. Nothing contained herein shall prevent
the Advisor from engaging in other activities, including, without
limitation, the rendering of advice to other investors (including
other REITs) and the management of other programs advised, sponsored
or organized by the Advisor or its Affiliates; nor shall this
Agreement limit or restrict the right of any director, officer,
employee or shareholder of the Advisor or its Affiliates to engage in
any other busi- |
6
| |
ness or
to render services of any kind to any other partnership, corporation, firm, individual,
trust or association. Notwithstanding the foregoing, however, the Advisor shall devote
sufficient resources to the administration of the Fund to discharge its obligations
hereunder. The Advisor may, with respect to any investment in which the Fund is a
participant, also render advice and service to each and every other participant therein.
The Advisor shall report to the Directors the existence of any condition or circumstance,
existing or anticipated, of which it has knowledge, which creates or could create a
conflict of interest between the Advisor’s obligations to the Fund and its
obligations to or its interest in any other person, promptly upon obtaining knowledge of
such condition or circumstance. |
| 12. |
Term;
Termination of Agreement. This Agreement shall continue in force
for one year from the date hereof, and thereafter shall be
automatically renewed for successive terms unless terminated by a
majority of the Independent Directors upon sixty days notice. The
Directors may determine not to renew this Agreement by so notifying
the Advisor anytime prior to the commencement of the new term. Any
such decision will be effective at the end of the existing term. |
| 13. |
Action
Upon Termination. The Advisor shall not be entitled to
compensation after the date of termination of this Agreement as
discussed in paragraph 12 above. The Advisor shall, forthwith upon
such termination: |
| |
(a) |
pay
over to the Fund all moneys collected and held for the account of the Fund
pursuant to this Agreement, after deducting any accrued compensation
and reimbursement for its expenses to which it is then entitled; |
| |
(b) |
deliver
to the Fund a full accounting, including a statement showing all
payments collected by it and a statement of all moneys held by it,
covering the period following the date of the last accounting
furnished to the Fund; and |
| |
(c) |
deliver
to the Fund all property and documents of the Fund then in the custody
of the Advisor. |
| 14. |
Change
of Name. Upon termination of this Agreement by either party,
whether or not in accordance with the provisions of this Agreement,
the Directors shall promptly cease to conduct business under or using
the name “NTS” or any derivative therof and the Fund shall
use its best efforts to cause the name of the Fund to be changed to a
name that does not contain “NTS” or any derivation thereof
or the name of the Ad- |
7
| |
visor or
of any Affiliate of the Advisor or any approximation or abbreviation thereof, and that is
sufficiently dissimilar, in the sole discretion of the Advisor, to such names as to be
unlikely to cause confusion or identification with the Advisor or any such Affiliate. |
| 15. |
Amendments.
The Agreement shall not be modified or terminated except by an
instrument in writing signed by both parties hereto, or their respective
successors or assigns, or otherwise as provided herein. |
| 16 |
Assignment. This Agreement will not be assignable without theconsent of
both parties hereby except by: (i) the Advisor to a person which is
an Affiliate of the Advisor or (ii) either the Advisor or the Fund to its
successor-in-interest. The Advisor may delegate some or all of its
duties under this Agreement to an Affiliate, including NTS. |
| 17. |
Governing
Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the internal laws of the State of
Kentucky without giving effect to principles of conflicts of laws. |
| 18. |
Directors
and Stockholders Not Liable. This Agreement is made on behalf of
the Fund by an officer of the Fund, not individually but solely as such
officer, and the obligations under this Agreement are not binding
upon, nor shall resort be had to, the private property of any of the
Directors, officers, Stockholders, employees or agents of the Fund
personally, but shall bind only the Fund property. |
| 19. |
Indemnification
by the Fund. The Fund shall indemnify and hold harmless the
Advisor from all liability, claims, damages or loss arising in the
performance of its duties hereunder, and related expenses, including
reasonable attorneys' fees, to the extent such
liability, claims, damages or losses and related expenses are not
fully reimbursed by insurance, subject to any restrictions described
in the Fund’s Certificate of Incorporation or By-Laws. |
| 20. |
Indemnification
by Advisor. The Advisor shall indemnify and hold harmless the
Fund from contract or other liability, claims, damages or losses and related
expenses including attorneys’ fees to the extent that such
liability, claims, damages or losses and related expenses are not
fully reimbursed by insurance and are incurred by reason of the
Advisor’s bad faith, fraud, willful misfeasance, gross
negligence or reckless disregard of its duties. |
| 21. |
Advisor’s
Investment Representation. The Advisor shall use |
8
|
its best
efforts to ensure, with respect to the Fund’s investments, that: (a) an appropriate
policy of title insurance is obtained with respect to any property encumbered by a lien
in favor of the Fund which secures a Loan made by the Fund or any property otherwise
acquired by the Fund, or that an opinion of counsel as to such title is obtained; (b) any
mortgage securing any investment of the Fund shall be a valid lien upon the mortgaged
property and upon foreclosure thereof would be subordinate only to such liens as are
expressly set forth therein; (c) the Principal amount of any Mortgage Loan made by the
Fund together with any indebtedness of senior or equal priority does not exceed 85% of
the Appraised Value or the As-Built Appraised Value of the property, (as defined in the
Prospectus of the Fund dated March 31, 1989), unless a majority of the Independent
Directors determine that an increased amount is justified by additional credit or
collateral; and (d) any property securing a Mortgage Loan forming part of the Fund’s
investments is duly insured against loss or damage by fire, with extended coverage, and
against such other insurable hazards and risks as are customary and appropriate in the
circumstances, and shall carry out the policies from time to time as specified by the
Fund with regard to the protection of the Fund’s investments. |
|
Furthermore, the
Advisor shall represent that it will use its best efforts to ensure that each proposed
loan which it recommends that the Fund make to an Affiliated Borrower is on terms which
are competitive with the terms the Fund could obtain if it made a loan in a similar
amount to a borrower which was not an Affiliated Borrower. |
| 22. |
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. |
| 23. |
Notices.
All notices, demands and other communication to be given or delivered
under or by reason of the provisions of this Agreement must be in
writing and will be deemed to have been given on the day established
by sender as having been delivered personally; on the day delivered
by private courier as such day is established by evidence obtained by
the sender from the courier; on the day and at the time established
by evidence obtained by the sender from a telegraph company if
telegraphic means of communication are used; or on the day
established by a return receipt with respect to notices, demands and
other communications intended to be delivered by U.S. mail. Such
notices, demands and other communications to be valid, must be
addressed: |
9
|
Xxxxxxx, Saitlin & Xxxxxxxx, Ltd.
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxxx, Esq. |
| (b) |
If
to the Advisor, to: |
|
NTS Advisory Corporation
00000 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxx
Attn: Xx. Xxxxxxx X. Good |
|
Xxxxxxx, Saitlin & Xxxxxxxx, Ltd.
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxxx, Esq. |
|
or to
such other address or to the attention of such other person as recipient party has
specified by prior written notice to the sending party (or in the case of counsel, to
such other readily ascertainable business address as such counsel may hereafter maintain). |
10
IN
WITNESS WHEREOF, we have executed this Agreement as of the date first above written.
| |
NTS ADVISORY CORPORATION
By: /s/ W. Xxxxxx Xxxx
——————————————
Name
Secretary/Treasurer
——————————————
Title |
11
