EXHIBIT 10.6
FORM OF ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of ________ __, 2004 between A REIT, Inc., a
Maryland corporation (the "Company"), and Triple Net Properties, LLC, a Virginia
limited liability company (the "Advisor").
WITNESSETH:
WHEREAS, the Company intends to qualify as a real estate investment
trust (a "REIT") as defined in Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"), and to make investments of the type
permitted to qualified REITs under the Code and not inconsistent with the
Charter of the Company (the "Charter") and the Bylaws of the Company; and
WHEREAS, the Company desires to avail itself of the experience, sources
of information, advice and assistance of 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 of the Company (the
"Board of Directors"), all as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such 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 herein set
forth, the parties hereto agree as follows:
1. DEFINITIONS.
As used herein, the following terms shall have the meanings set forth
below:
(a) "ACQUISITION EXPENSES" shall mean any and all expenses
related to selecting, evaluating and acquiring properties, whether or
not acquired, including, but not limited to, legal fees and expenses,
travel and communications expenses, cost of appraisals and surveys,
nonrefundable option payments on property not acquired, accounting fees
and expenses, computer use related expenses, architectural, engineering
and other property reports, environmental and asbestos audits, title
insurance and escrow fees, transfer taxes and personnel and
miscellaneous expenses related to the selection, evaluation and
acquisition of properties.
(b) "ACQUISITION FEES" shall mean 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 Advisor) in connection with the
purchase, development or construction of any Property, including,
without limitation, real estate commissions, acquisition fees, finder's
fees, selection fees, non-recurring management fees, consulting fees,
loan fees or points or any fee of a similar nature, however designated.
(c) "AFFILIATE" shall mean: (i) any Person directly or
indirectly owning, controlling or holding, with the power to vote 10%
or more of the outstanding voting securities of such other Person; (ii)
any Person 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; (iii) any Person directly or indirectly
controlling, controlled by or under common control with such other
Person; (iv) any executive officer, director, manager, trustee or
general partner of such other Person; and (v) any legal entity for
which such Person acts as an executive officer, director, manager,
trustee or general partner.
(d) "AVERAGE INVESTED ASSETS" shall mean, for any period, the
average of the aggregate Book Value of the assets of the Company
invested, directly or indirectly, in real estate assets or in equity
interests in and loans secured by real estate, before reserves for
depreciation or bad debts or other similar non-cash reserves, computed
by taking the average of such values at the end of each month during
such period.
(e) "BOOK VALUE" of an asset shall mean the value of such
asset on the books of the Company, before allowance for depreciation or
amortization.
(f) "BYLAWS" shall mean the bylaws of the Company, as the same
are in effect from time to time.
(g) "CHARTER" shall mean the Articles of Incorporation of the
Company filed within the meaning of the Maryland General Corporation
Law, as amended from time to time.
(h) "COMMON STOCK" shall mean the common stock, par value $.01
per share, of the Company.
(i) "COMPETITIVE REAL ESTATE COMMISSION" shall mean the real
estate or brokerage commission paid for the purchase or sale of a
Property which is reasonable, customary and competitive in light of the
size, type and location of such Property.
2
(j) "CUMULATIVE RETURN" shall mean a cumulative,
non-compounded return equal to 8% per annum on Invested Capital
commencing upon acceptance by the Company of an investor's
subscription.
(k) "FISCAL YEAR" shall mean any period for which any income
tax return is submitted by the Company to the Internal Revenue Service
and which is treated by the Internal Revenue Service as a reporting
period.
(l) "GROSS OFFERING PROCEEDS" shall mean the total proceeds
from the sale of Shares before deductions for Organization and Offering
Expenses. For purposes of calculating Gross Offering Proceeds, the
purchase price for all Shares issued in the Company's initial public
offering, including those for which volume discounts apply, shall be
deemed to be $10.00 per Share. Unless specifically included, Gross
Offering Proceeds does not include any proceeds from the sale of Shares
pursuant to the Company's Distribution Reinvestment Plan.
(m) "GROSS INCOME FROM PROPERTIES" shall mean all cash
receipts derived from the operation of the Company's Property,
excluding (i) tenant security deposits unless and until such deposits
are forfeited upon a tenant default, and (ii) proceeds from insurance
claims, condemnation proceedings, sales or refinancings.
(n) "INCENTIVE DISTRIBUTION UPON DISPOSITIONS" shall mean an
amount equal to 10% of the net proceeds from the sale of a Property
after the Company has received and paid to Stockholders the sum of (i)
Invested Capital initially allocated to that Property, and (ii) any
remaining shortfall in the recovery of Invested Capital with respect to
prior sales of Properties, and (iii) any remaining shortfall in the
Cumulative Return as described in Section 9(h).
3
(o) "INDEPENDENT DIRECTORS" shall mean a Director who is not,
and within the last two (2) years has not been, directly or indirectly,
associated with a Sponsor or the Advisor by virtue of (i) ownership of
an interest in a Sponsor, the Advisor or their Affiliates, (ii)
employment by a Sponsor, the Advisor or their Affiliates, (iii) service
as an officer or director of a Sponsor, the Advisor or their
Affiliates, (iv) performance of services, other than as a Director, for
the Company, (v) service as a director or trustee of more than three
(3) real estate investment trusts organized by a Sponsor or advised by
the Advisor, or (vi) maintenance of a material business or professional
relationship with a Sponsor, the Advisor or any of their Affiliates. An
indirect relationship shall include circumstances in which a Director's
spouse, parents, children, siblings, mothers- or fathers-in-law, sons-
or daughters-in-law or brothers- or sisters-in-law is or has been
associated with a Sponsor, the Advisor, any of their Affiliates or the
Company. A business or professional relationship is considered material
if the gross revenue derived by the Director from a Sponsor, the
Advisor and Affiliates exceeds five percent (5%) of either the
Director's annual gross revenue during either of the last two (2) years
or the Director's net worth on a fair market value basis.
(p) "INVESTED CAPITAL" shall mean the total proceeds from the
sale of Shares. When a Property is sold, Invested Capital will be
reduced by the lesser of (1) the net sale proceeds available for
distribution from such sale or (2) the sum of (A) the portion of
Invested Capital that initially was allocated to that Property and (B)
any remaining shortfall in the recovery of Invested Capital with
respect to prior sales of Properties.
(q) "LISTING" shall mean the listing of the Shares of the
Company on a national securities exchange or inclusion for quotation on
a national market system.
(r) "NET INCOME" shall mean, for any period, total revenues
applicable to such period, less the operating expenses applicable to
such period other than additions to or allowances for reserves for
depreciation, amortization or bad debts or other similar noncash
reserves; provided, however, that Net Income shall not include any gain
from the sale of the Company's assets.
(s) "OFFERING" shall mean the offering of Shares of the
Company pursuant to the Prospectus on a "best efforts" basis.
4
(t) "ORGANIZATION AND OFFERING EXPENSES" shall mean those
expenses incurred by and to be paid from the assets of the Company in
connection with and in preparing the Company for registration and
subsequently offering and distributing Shares to the public, including,
but not limited to, total underwriting and brokerage discounts and
commissions (including reasonable fees of the underwriters' attorneys),
expenses for printing, engraving, mailing, salaries of employees while
engaged in sales activity, charges of transfer agents, registrars,
trustees, escrow holders, depositaries, experts, expenses of
qualification of the sale of the Shares under federal and state laws,
including taxes and fees, and accountants', consultants' and attorneys'
fees and expenses.
(u) "PARTNERSHIP" shall mean A REIT, L.P., a Maryland limited
partnership, and a majority-owned subsidiary of the Company.
(v) "PERFORMANCE TERMINATION FEE" shall mean, upon the
Termination Date, an amount equal to 10% of the amount, if any, by
which (1) the appraised value of the Company's assets on the
Termination Date, less (a) the amount of all indebtedness secured by
such assets, and (b) the aggregate distributions made to the
Stockholders, exceeds (2) the sum of (a) 100% of the Invested Capital
and (b) the total amount required to be distributed to the Stockholders
in order to pay the Cumulative Return from inception through such
Termination Date.
(w) "PROPERTY" or "PROPERTIES" shall mean any, or all,
respectively, of the real property and improvements thereon or direct
or indirect interests in, including equity or debt interests in
entities that own, real property and improvements thereon owned or to
be owned by the Company, directly or indirectly.
(x) "PROPERTY DISPOSITION FEE" shall mean a real estate
disposition fee payable (under certain conditions) to the Advisor and
its Affiliates upon the sale of the Company's Property as described in
Section 9(e).
(y) "PROPERTY MANAGEMENT FEE" shall mean any fee paid to an
Affiliate or third party as compensation for management of the
Company's properties as described in Section 9(f).
(z) "PERSON" shall mean any natural person, partnership,
corporation, association, trust, limited liability company or other
legal entity.
(aa) "PROSPECTUS" shall mean the final prospectus of the
Company in connection with the initial registration of Shares filed
with the Securities
5
and Exchange Commission on Form S-11, as supplemented and amended from
time to time.
(bb) "REAL ESTATE COMMISSION" shall mean the real estate or
brokerage commission paid in connection with the purchase of a
Property.
(cc) "SHARES" shall mean the shares of Common Stock of the
Company.
(dd) "SPONSOR" shall mean any Person, directly or indirectly,
instrumental in organizing, wholly or in part, the Company or any
Person who will control, manage or participate in the management of the
Company, and any Affiliate of such Person. Not included is any Person
whose only relationship with the Company is that of an independent
property manager of Company assets, and whose only compensation is as
such. Sponsor does not include wholly independent third parties such as
attorneys, accountants, and underwriters whose only compensation is for
professional services. A Person also may be deemed a Sponsor of the
Company by:
(i) taking the initiative, directly or indirectly, in
founding or organizing the business or enterprise of the
Company, either alone or in conjunction with one or more other
Persons;
(ii) receiving a material participation in the
Company in connection with the founding or organizing of the
business of the Company, in consideration of services or
property, or both services and property;
(iii) having a substantial number of relationships
and contacts with the Company;
(iv) possessing significant rights to control Company
properties;
(v) receiving fees for providing services to the
Company which are paid on a basis that is not customary in the
industry; or
(vi) providing goods or services to the Company on a
basis which was not negotiated at arms length with the
Company.
(ee) "STOCKHOLDERS" shall mean holders of the Shares.
(ff) "TERMINATION DATE" shall mean the date this Agreement is
terminated.
6
(gg) "TOTAL OPERATING EXPENSES" shall mean the aggregate
expenses of every character paid or incurred by the Company as
determined under generally accepted accounting principles, including
fees paid to the Advisor, but excluding:
(i) the expenses of raising capital such as
Organization and Offering Expenses, legal, audit, accounting,
underwriting, brokerage, listing, registration and other fees,
printing and other such expenses, and taxes incurred in
connection with the issuance, distribution, transfer,
registration and Listing of the Shares;
(ii) interest payments;
(iii) taxes;
(iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves;
(v) the Incentive Distribution Upon Dispositions; and
(vi) Acquisition Fees, Acquisition Expenses, real
estate commissions on resale of any property and other
expenses connected with the acquisition, disposition (whether
by sale, exchange or condemnation) and ownership of real
estate interests, mortgage loans or other property (such as
the costs of foreclosure, insurance premiums, legal services,
maintenance, repair and improvement of property).
2. DUTIES OF THE ADVISOR.
The Advisor shall consult with 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. In general, the Advisor shall inform the Board of Directors of factors
that come to its attention which could influence the policies of the Company.
Subject to the supervision of the Board of Directors and consistent with the
provisions of the Charter and the Bylaws, the Advisor shall, either directly or
by engaging an Affiliate, use its best efforts to:
7
(a) Present to the Company a continuing and suitable
investment program and opportunities to make investments consistent
with the investment objectives and policies of the Company and the
investment program adopted by the Board of Directors and in effect at
the time and furnish the Company with advice with respect to the
making, acquiring, holding and disposing of investments and commitments
therefor. The Advisor also is obligated to provide the Company with the
first opportunity to purchase any income-producing automotive, aviation
or aerospace-related properties placed under contract by the Advisor or
its Affiliates, provided that: (1) the Company has funds available to
make the purchase; (2) the Board of Directors votes to make the
purchase within 7 days of being offered such property by the Advisor;
and (3) the property meets the Company's acquisition criteria as
disclosed to the Advisor from time to time; provided, further, that in
the event that any income-producing automotive, aviation or
aerospace-related property contains government tenants that would fit
within the investment criteria of G REIT, Inc., a public company for
which the Advisor also acts as the advisor, is placed under contract
for acquisition, that the Advisor has an obligation to provide the
first opportunity to acquire such property to G REIT, Inc.;
(b) Manage the Company's day-to-day operations to effect the
investment program adopted by the Board of Directors and perform or
supervise the performance of such other administrative functions
necessary in connection with the management of the Company as may be
agreed upon by the Advisor and the Company;
(c) Serve as the Company's investment advisor in connection
with policy decisions to be made by the Board of Directors and, as
requested, furnish reports to the Board of Directors and provide
research, economic and statistical data in connection with the
Company's investments and investment policies;
(d) On behalf of the Company, investigate, select and conduct
business with such Persons as the Advisor deems necessary to the proper
performance of its obligations hereunder, including, but not limited
to, lenders, consultants, accountants, brokers, property managers,
attorneys, underwriters, appraisers, insurers, escrow agents, transfer
agents, 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
with, retain and supervise services performed by such parties in
connection with investments which have been or may be acquired or
disposed of by the Company;
8
(e) Perform such property management services and other
activities relating to the Company's assets as the Advisor shall deem
appropriate in the particular circumstances, or cooperate with any
property manager in connection with property management services and
other activities relating to the Company's properties as the Advisor
shall deem appropriate in the particular circumstances, subject to the
requirement that the Advisor qualify as an "independent contractor" as
that phrase is used in connection with applicable laws, rules and
regulations affecting REITs that own real property;
(f) 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, voting or otherwise
consenting to actions required to be taken as the holder of a security
or other interest in any property or Person, disbursing and collecting
the funds, 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;
(g) Assist in negotiations on behalf of the Company with
investment banking firms, broker-dealers, and other institutions or
investors for public or private sales of securities of the Company or
for other financing on behalf of the Company, but in no event in such a
way that the Advisor shall be acting as a broker, dealer, investment
adviser or underwriter of securities of the Company; and provided
further, that any fees and expenses payable to third parties incurred
by the Advisor in connection with the foregoing shall be the
responsibility of the Company;
(h) On behalf of the Company, 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 with respect to the Company's assets;
(i) At the direction of the Board of Directors, invest and
reinvest any money of the Company;
(j) Supervise the preparation and filing and distribution of
returns and reports to governmental agencies and to investors and act
on behalf of the Company in connection with investor relations;
(k) Provide office space, equipment and personnel as required
for the performance of the foregoing services as advisor;
9
(1) Advise the Company of the operating results of the
Company's properties, prepare on a timely basis, and review, for such
properties, operating budgets, maintenance and improvement schedules,
projections of operating results and such other reports as may be
appropriate and/or requested by the Board of Directors;
(m) As 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;
(n) Prepare on behalf of the Company, or engage independent
professionals to prepare, all reports and returns required by the
Securities and Exchange Commission, Internal Revenue Service and other
state or federal governmental agencies, provided that the Company is
responsible for the fees and expenses of such independent
professionals;
(o) Notify the Board of Directors of all proposed material
transactions prior to their completion;
(p) Undertake and perform all services or other activities
necessary and proper to carry out the investment objectives of the
Company; and
(q) Undertake communications with Stockholders in accordance
with applicable law and the Charter;
provided, however, that Affiliates of the Advisor have no obligations to the
Company other than as expressly stated herein. Notwithstanding the foregoing,
the Advisor hereby represents and acknowledges that it will have fiduciary
duties to the Stockholders and that the Company is making a statement to that
effect in its registration statement filed with the Securities and Exchange
Commission.
3. NO PARTNERSHIP OR JOINT VENTURE.
The Company and the Advisor are not, and shall not be deemed to be,
partners or joint venturers with each other.
4. RECORDS; ACCESS.
The Advisor shall maintain appropriate books of account and records
relating to services performed hereunder, which shall be accessible for
inspection by the Company, its attorneys, auditors and authorized agents at any
time and from time to time during normal business hours.
10
5. LIMITATIONS ON ACTIVITIES.
Notwithstanding any other provision of this Agreement to the contrary,
the Advisor shall refrain from taking any action which, in its reasonable
judgment, (a) would adversely affect the qualification of the Company as a REIT
under the Code or (b) would violate any law, rule, regulation or statement of
policy of any governmental body or agency having jurisdiction over the Company
or its securities, or (c) would otherwise not be permitted by the Charter or
Bylaws of the Company, except if such action shall be ordered by the Board of
Directors, in which case, the Advisor shall promptly notify the Board of
Directors of the Advisor's judgment of the potential impact of such action and
shall thereafter refrain from taking such action until it receives further
clarification or instructions from the Board of Directors. In such event, the
Advisor shall have no liability for acting in accordance with the specific
instructions of the Board of Directors so given. Notwithstanding the foregoing,
the Advisor, its managers, officers, employees and members, managers, directors,
officers and stockholders of its Affiliates shall not be liable to the Company
or to the Board of Directors or Stockholders for any act or omission by the
Advisor, its managers, officers or employees, or managers, directors or officers
of the Advisor's Affiliates except as provided in Sections 25 and 26 of this
Agreement.
6. BANK ACCOUNTS.
At the direction of the Board of Directors, the Advisor may establish
and maintain bank accounts in the name of the Company, and may collect and
deposit into and disburse from such accounts any money on behalf of the Company,
under 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 Advisor.
The Advisor shall from time to time, as the Company may require, render
appropriate accountings of such collections, deposits and disbursements to the
Board of Directors and to the auditors of the Company.
7. FIDELITY BOND.
The Advisor shall not be required to obtain or maintain a fidelity bond
in connection with the performance of its services hereunder.
11
8. INFORMATION FURNISHED TO THE ADVISOR.
The Board of Directors will keep the Advisor informed in writing
concerning the investment and financing policies of the Company. The Board of
Directors shall notify the Advisor promptly in writing of its intention to make
any investments or to sell or dispose of any existing investments. The Company
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 its affairs as the Advisor may
reasonably request.
9. COMPENSATION.
The Advisor and its Affiliates shall be paid for services rendered by
the Advisor under this Agreement as follows:
(a) The Company will reimburse the Advisor for Organization
and Offering Expenses incurred on behalf of the Company.
(b) In property acquisitions in which an Affiliate of the
Advisor or the Company acts as real estate broker, such Affiliate may
receive a Real Estate Commission from the seller or the Company of up
to 3% of the purchase price of the Property.
(c) The Company will reimburse the Advisor for Acquisition
Expenses. The total of all Acquisition Expenses paid when added to any
Real Estate Commission paid in connection with the purchase of a
Property may not exceed an amount equal to 6% of the contract purchase
price for the Property. The total of all Acquisition Expenses paid in
connection with the purchase of all Properties by the Company may not
exceed 0.5% of the Gross Offering Proceeds.
(d) The Company will reimburse the Advisor and its Affiliates
for: (i) the cost to the Advisor or its Affiliates of goods and
services used for and by the Company and obtained from unaffiliated
parties, and (ii) Administrative Services related thereto.
"Administrative Services" include only ministerial services such as
typing, recordkeeping, preparation and dissemination of Company
reports, preparation and maintenance of records regarding Stockholders,
recordkeeping and administration of the Company's Distribution
Reinvestment Plan, preparation and dissemination of responses to
Stockholder inquiries and other communications with Stockholders and
any other recordkeeping required for Company purposes. Such
reimbursements are subject to limitations imposed by Sections 10(b) and
(c) hereof.
12
(e) A Property Disposition Fee, payable out of the proceeds of
the sale of a Property, equal to the lesser of (i) 3% of the contracted
for sales price of the Property; or (ii) 50% of the Competitive Real
Estate Commission. The amount paid, when added to the sums paid to
unaffiliated parties, shall not exceed the lesser of the Competitive
Real Estate Commission or an amount equal to 6% of the contracted for
sales price of the Property. Payment of such fee shall be made only if
the Advisor provides a substantial amount of services in connection
with the sale of the Property.
(f) The Company will pay to an Affiliate of the Advisor or a
third party a Property Management Fee equal to 5% of the Gross Income
from Properties. This fee will be paid monthly.
(g) The Company will pay to the Advisor fees for
property-level services including leasing fees, construction management
fees, loan origination and servicing fees and risk management fees;
provided that any such compensation to the Advisor will not exceed the
amount which would be paid to unaffiliated third parties providing such
services and all such compensation must be approved by a majority of
the Independent Directors.
(h) Upon the sale of a Property by the Company, the
Partnership will pay to the Advisor the Incentive Distribution Upon
Dispositions. If the Company, and in turn the Stockholders, have not
received a return of Invested Capital or if there is a shortfall in the
Cumulative Return after the sale of the last Property and the Advisor
previously has received Incentive Distributions Upon Dispositions,
other than Incentive Distributions Upon Dispositions that have been
repaid previously, the Advisor will repay to the Partnership a portion
of those distributions sufficient to cause the Company, and in turn the
Stockholders, to receive a full return of Invested Capital and the full
Cumulative Return. In no event will the aggregate amount repaid by the
Advisor to the Partnership exceed the aggregate amount of Incentive
Distributions Upon Dispositions that the Advisor previously received.
10. COMPENSATION FOR ADDITIONAL SERVICES, CERTAIN LIMITATIONS.
(a) If the Company shall request the Advisor or its Affiliates
or any director, manager, officer or employee thereof to render
services to the Company other than those required to be rendered by the
Advisor hereunder, such additional services, if the Advisor elects to
perform them, will be compensated separately on terms to be agreed upon
between such party and the Company from time to time in accordance with
this Section 10. The rate of compensation for such services shall be
approved by a majority of the Board of Directors, including a majority
of the Independent Directors, as
13
being fair and reasonable to the Company and shall not exceed an amount
that would be paid to nonaffiliated third parties for similar services.
(b) In extraordinary circumstances fully justified to the
official or agency administering the state securities laws, the Advisor
and its Affiliates may provide other goods and services to the Company
if all of the following criteria are met: (i) the goods or services
must be necessary to the prudent operation of the Company; or (ii) the
compensation, price or fee must be equal to the lesser of 90% of the
compensation, price or fee the Company would be required to pay to
independent parties who are rendering comparable services or selling or
leasing comparable goods on competitive terms in the same geographic
location, or 90% of the compensation, price or fee charged by the
Advisor or its Affiliates for rendering comparable services or selling
or leasing comparable goods on competitive terms. In addition, any such
payment will be subject to the further limitation described in
paragraph (c) below. Extraordinary circumstances shall be presumed only
when there is an emergency situation requiring immediate action by the
Advisor or its Affiliates and the goods or services are not immediately
available from unaffiliated parties. Services which may be performed in
such extraordinary circumstances include emergency maintenance of
Company Properties, janitorial and other related services due to
strikes or lock-outs, emergency tenant evictions and repair services
which require immediate action, as well as operating and re-leasing
properties with respect to which the leases are in default or have been
terminated.
(c) No reimbursement will be permitted to the Advisor or its
Affiliates under Section 9(d)(ii) above for the salaries, fringe
benefits, travel expenses and other administrative items of any
controlling persons of the Advisor, its Affiliates or any other
supervisory personnel except in those instances in which the Company
believes it to be in the best interest of the Company that the Advisor
or its Affiliates operate or otherwise deal with, for an interim
period, a property with respect to which the lease is in default or
terminated. Controlling persons, for purposes of this Section, include,
but are not limited to those entities or individuals holding 5% or more
of the ownership interests of the Advisor or a person having the power
to direct or cause the direction of the Advisor, whether through
ownership of voting securities, by contract or otherwise, and any
person, irrespective of his or her title, who performs functions for
the Advisor similar to those of (A) chairman or member of the board of
directors; or (B) president or executive vice-president.
Notwithstanding the foregoing, and subject to the approval of the Board
of Directors, the Company may reimburse the Advisor for expenses related to the
activities of controlling persons undertaken in capacities other than those
which
14
cause them to be controlling persons. The Advisor believes that the employees of
the Advisor, its Affiliates and controlling persons who perform services for the
Company for which reimbursement is allowed pursuant to Section 10(b) have the
experience and educational background, in their respective fields of expertise,
appropriate for the performance of such services.
The foregoing reimbursements of expenses, as limited by this Agreement,
will be made regardless of whether any cash distributions are made to the
Stockholders.
11. RELATIONSHIP WITH DIRECTORS.
Managers, officers and employees of the Advisor or directors, managers,
officers and employees of an Affiliate of the Advisor or any corporate parent of
an Affiliate, or directors, officers or stockholders of any director, officer or
corporate parent of an Affiliate may serve as a Director and as officers of the
Company, except that no director, manager, officer or employee of the Advisor or
its Affiliates who is also a Director or officer of the Company shall receive
any compensation from the Company for serving as a Director or officer other
than reasonable reimbursement for travel and related expenses incurred in
attending meetings of the Board of Directors.
12. STATEMENTS.
The Advisor shall furnish to the Company not later than the 60th day
following the end of each Fiscal Year, a statement showing a computation of the
fees or other compensation payable to the Advisor or an Affiliate of the Advisor
with respect to such Fiscal Year under Sections 9 and 10 hereof. The final
settlement of compensation payable under Sections 9 and 10 hereof for each
Fiscal Year shall be subject to adjustments in accordance with, and upon
completion of, the annual audit of the Company's financial statements.
15
13. LISTING OF THE SHARES.
If this Agreement is terminated in connection with Listing the Shares,
the Advisor will receive, in exchange for terminating this Agreement and the
giving up or waiving of its fees then earned but not paid and all future fees,
such consideration to be determined by the Independent Directors and the
Advisor. In addition, at such time, the Company may cause the Partnership to
redeem the Advisor's interests as special limited partner for cash, or if agreed
by both parties, units of limited partnership interest in the Partnership or
Shares, for the amount the Advisor would have received if the Partnership
immediately sold all of its assets at fair market value. In the event of such a
termination of this Agreement, the Company shall thereafter be relieved of its
obligation to pay the fees contemplated by this Agreement.
14. EXPENSES OF THE COMPANY.
The Company shall pay all of its expenses and shall reimburse the
Advisor for its expenses as provided in Sections 9 and 10 hereof and, without
limiting the generality of the foregoing, it is agreed that the following
expenses of the Company shall be paid by the Company:
(a) To the extent the Advisor is not expressly required to pay
such expenses pursuant to this Agreement, salaries and other employment
expenses of the personnel employed by the Company, directors' fees and
expenses incurred in attending directors' meetings, travel and other
expenses incurred by directors, officers and employees of the Company
and the cost of directors' liability insurance;
(b) The cost of borrowed money;
(c) All taxes applicable to the Company;
(d) Legal, accounting, auditing, underwriting, brokerage,
listing, registration and other expenses and taxes incurred in
connection with the organization or operations of the Company, the
issuance, distribution, transfer, registration and Listing of the
Company's securities;
(e) Fees and expenses paid to advisors, independent
contractors and Affiliates of the Advisor (as described herein),
consultants, managers and other agents employed directly by the Company
or by the Advisor at the Company's request for the account of the
Company;
16
(f) Expenses connected with the acquisition, disposition,
leasing and ownership of investments, including, to the extent not paid
by others, but not limited to, legal fees and other expenses for
professional services, maintenance, repair and improvement of Property,
brokerage and sales commissions and expenses of maintaining and
managing property equity interests;
(g) All insurance costs incurred in connection with the
Company and its properties;
(h) Expenses connected with payments of dividends or interest
or distributions in cash or any form made or caused to be made by the
Board of Directors to Stockholders;
(i) All expenses connected with communications to Stockholders
and the other bookkeeping and clerical work necessary in maintaining
relations with Stockholders and in complying with the continuous
reporting and other requirements of governmental bodies or agencies,
including the cost of printing and mailing certificates for securities,
annual and periodic reports and proxy solicitation materials and other
reports to Stockholders;
(j) Transfer agent and registrar's fees and charges; and
(k) Expenses relating to any office or office facilities
maintained by the Company separate from the office or offices of the
Advisor.
15. REIMBURSEMENT BY THE ADVISOR.
The parties acknowledge that pursuant to the "Statement of Policy
Regarding Real Estate Investment Trusts," as revised and adopted by the North
American Securities Administrators Association on September 29, 1993, Total
Operating Expenses of the Company shall be deemed to be excessive if in any
Fiscal Year they exceed the greater of (a) 2% of the Company's Average Invested
Assets for such Fiscal Year; or (b) 25% of the Net Income for such Fiscal Year.
The Independent Directors shall have the fiduciary responsibility of limiting
such expenses to amounts that do not exceed such limitations. Within 60 days
after the end of any fiscal quarter of the Company for which Total Operating
Expenses (for the 12 months then ended) exceed 2% of Average Invested Assets or
25% of Net Income, whichever is greater, the Company shall send to the
Stockholders written notice of such fact together with the determination of the
Independent Directors as to whether such higher operating expenses were
justified and if so justified, an explanation of the facts the Independent
Director considered in arriving at that conclusion also shall be included. If
the Independent Directors determine that such excess expenses are not justified,
then the Advisor shall reimburse the Company the
17
amount by which the aggregate expenses incurred by the Company exceed the
limitations described above at the end of the Fiscal Year; provided, however,
that the Company may instead permit such reimbursements to be effected by a
reduction in the amount of the next payments of compensation under Section 9.
16. OTHER ACTIVITIES OF THE ADVISOR.
Nothing contained in this Agreement shall prevent the Advisor from
engaging in other activities, including, without limitation, the rendering of
advice to other Persons (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, manager,
officer, employee, stockholder or member of the Advisor or its Affiliates to
engage in any other business or to render services of any kind to any other
Persons. The Advisor may, with respect to any investment in which the Company is
a participant, also render advice and service to each and every other
participant therein. The Advisor shall report to the Board of 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 Company and its obligations to or its interest in
any other Person. The Advisor or its Affiliates shall promptly disclose to the
Board of Directors knowledge of such condition or circumstance.
17. TERM; TERMINATION OF AGREEMENT.
(a) This Agreement will continue in force until ________ __, 2005,
subject to an unlimited number of successive one-year renewals with the written
mutual consent of the parties. It is the duty of the Board of Directors,
including a majority of the Independent Directors, to evaluate the performance
of the Advisor annually before renewing the Agreement, and each such agreement
shall have a term of no more than one year.
(b) Notwithstanding any other provision of this Agreement to the
contrary, either the Company or the Advisor may terminate this Agreement, or any
extension hereof, or the parties by mutual consent or a majority of the
Independent Directors may do so, in each case upon 60 days written notice
without cause. In the event of the termination of this Agreement, the Advisor
will cooperate with the Company and take all reasonable steps requested to
assist the Board of Directors in making an orderly transition of the advisory
function.
18
(c) If this Agreement is terminated pursuant to this Section 17 for any
reason other than the Listing of the Shares as contemplated by Section 13, upon
the satisfactory performance of the Advisor, as determined by a majority of the
Board of Directors, including a majority of the Independent Directors, when the
Advisor's performance is compared to (1) the performance of the Advisor in
comparison to its performance for other entities and (2) performance of other
advisors for similar entities, the Advisor shall be entitled to the Performance
Termination Fee.
(d) If this Agreement is terminated for any reason other than the
Listing of the Shares as contemplated in Section 13, all obligations of the
Advisor and its Affiliates to offer property to the Company for purchase, as
described in Section 2(a), also shall terminate.
18. ASSIGNMENTS.
The Company may terminate this Agreement immediately in the event of
its assignment by the Advisor except an assignment to a successor organization
which acquires substantially all of the assets and carries on the affairs of the
Advisor; provided, that following such assignment the Persons who controlled the
operations of the Advisor immediately prior thereto shall control the operations
of the successor organization, including the performance of its duties under
this Agreement; however, if at any time subsequent to such assignment such
Persons shall cease to control the operations of the successor organization, the
Company may thereupon immediately terminate this Agreement. This Agreement shall
not be assignable by the Company without the consent of the Advisor, except in
the case of assignment by the Company to a corporation, trust or other
organization which is a successor to all of the assets, rights and obligations
of the Company. Any assignment of this Agreement shall bind the assignee
hereunder in the same manner as the assignor is bound hereunder.
19. 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 Advisor if any of the following events occurs:
(a) The Advisor violates any material provisions of this
Agreement and, after receipt of written notice of such violation, such
violation is not cured within 30 days; or
(b) A court of competent jurisdiction enters a decree or order
for relief in respect of the Advisor 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
19
similar official) of the Advisor or for all or substantially all of its
assets or orders the winding up or liquidation of the Advisor's
affairs; or
(c) The Advisor 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 Advisor or for all
or substantially all of its assets, or makes any general assignment for
the benefit of creditors, or fails generally to pay its debts as they
become due.
The Advisor agrees that if any of the events specified in
subsections (b) and (c) of this Section 19 occur, it will give written
notice thereof to the Company within 7 days after the occurrence of
such event.
20. ACTION UPON TERMINATION.
The Advisor shall not be entitled to compensation after the Termination
Date of this Agreement for further services hereunder, but shall be paid all
compensation accruing to such Termination Date, including the Performance
Termination Fee, if any. Upon termination and subject to the provisions of
Section 13, the Advisor shall promptly:
(a) Pay over to the Company all monies collected and held for
the account of the Company pursuant to this Agreement, after deducting
any accrued compensation and reimbursement for its expenses to which it
is then entitled;
(b) Deliver to the Board of Directors a full accounting,
including a statement showing all payments collected by it and a
statement of all monies held by it, covering the period following the
date of the last accounting furnished to the Board of Directors;
(c) Deliver to the Board of Directors all property, documents
and books and records of the Company then in the custody of the
Advisor; and
(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 advisory function.
20
21. EQUITY CONTRIBUTION BY THE ADVISOR.
The Advisor has contributed to the Partnership $200,000 in exchange for
20,000 units of limited partnership interest (the "Units"). The Advisor may not
sell these Units while this Agreement is in effect, although the Advisor may
transfer such Units to Affiliates. The restrictions included above shall not
apply to any other Units or any Shares acquired by the Advisor or its
Affiliates. The Advisor shall not vote any Shares it now owns, or hereafter
acquires, in any vote for the removal of Directors or any vote regarding the
approval or termination of any contract with the Advisor, including this
Agreement, or any of its Affiliates.
22. 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 provided
herein.
23. SUCCESSORS AND ASSIGNS.
This Agreement shall bind any successors or permitted assigns of the
parties hereto as herein provided.
24. GOVERNING LAW.
The provisions of this Agreement shall be governed, construed and
interpreted in accordance with the laws of the State of Maryland, without regard
to its conflict of laws provisions.
25. INDEMNIFICATION BY THE COMPANY.
The Company shall, to the fullest extent permitted by Maryland
statutory or decisional law, as amended or interpreted, and without limiting the
generality of the foregoing, in accordance with Section 2-418 of the Maryland
General Corporation Law, indemnify and hold harmless the Advisor and its
Affiliates, including their respective officers, directors, managers, partners
and employees from all liability, claims, damages, taxes or losses arising in
the performance of their duties hereunder, and related expenses, including
reasonable attorneys' fees, to the extent such liability, claims, damages, taxes
or losses and related expenses are not fully reimbursed by insurance, subject to
any limitations imposed by the laws of the State of Maryland or the Charter or
the Bylaws. Notwithstanding the foregoing, the Advisor shall not be entitled to
indemnification or be held harmless pursuant to this Section 25 for any activity
for which the Advisor shall be required to indemnify or hold harmless the
Company pursuant to Section 26. Any
21
indemnification of the Advisor may be made only out of the net assets of the
Company and not from the Stockholders.
26. INDEMNIFICATION BY THE ADVISOR.
The Advisor shall indemnify and hold harmless the Company from contract
or other liability, claims, damages, taxes or losses and related expenses
including reasonable attorneys' fees, to the extent that such liability, claims,
damages, taxes or losses and related expenses are not fully reimbursed by
insurance and are incurred by reason of the Advisor's bad faith, fraud,
misconduct or negligence and, in the case of a criminal proceeding, the
Advisor's conduct was unlawful; provided, however, the Advisor shall not be held
responsible for any action of the Board of Directors in following or declining
to follow any advice or recommendation given by the Advisor.
27. NOTICES.
Any notice, report or other communication required or permitted to be
given hereunder shall be in writing unless some other method of giving such
notice, report or other communication is accepted by the party to whom it is
given and shall be given by being delivered at the following addresses of the
parties hereto:
THE COMPANY AND/OR THE BOARD OF DIRECTORS:
A REIT, Inc.
Xxxxx 000
0000 X. Xxxxxx Xxxxxx
Xxxxx Xxx, XX 00000
THE ADVISOR:
Triple Net Properties, LLC
Xxxxx 000
0000 X. Xxxxxx Xxxxxx
Xxxxx Xxx, XX 00000
Either 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 27.
28. MISCELLANEOUS.
(a) 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.
22
(b) Severability. The provisions of this Agreement are independent of
and severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.
(c) Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
(d) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts thereof, individually or taken together,
shall bear the signature of all of the parties reflected hereon as the
signatories.
(e) Gender. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
(f) No Waiver. Neither the failure nor any delay on the part of a party
to exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of the
same or of any other right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.
23
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
A REIT, INC., a Maryland corporation
By:
-----------------------------------
Title:
--------------------------------
ADVISOR:
TRIPLE NET PROPERTIES, LLC, a Virginia limited liability
company
By:
-----------------------------------
Title:
--------------------------------
24
