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EXHIBIT
10.5
ADVISORY
AGREEMENT
THIS ADVISORY
AGREEMENT (this “AGREEMENT”), dated as of
August 11, 2007, (the “EFFECTIVE DATE”), is by and
among WELLS TIMBERLAND REIT, INC., a Maryland corporation (the
“COMPANY”), WELLS TIMBERLAND OPERATING PARTNERSHIP,
L.P., a Delaware limited partnership (the
“PARTNERSHIP”), and WELLS TIMBERLAND MANAGEMENT
ORGANIZATION, LLC, a Georgia limited liability company (the
“ADVISOR”).
WITNESSETH
WHEREAS, the
Company has filed with the Securities and Exchange Commission (the
“SEC”) a Registration Statement on Form S-11 (the
“REGISTRATION STATEMENT”) covering the initial public
offering of its common stock, par value $0.01 per share (the
“SHARES”), and the SEC declared the Registration
Statement effective on August 11, 2006;
WHEREAS, the
Company intends to qualify as a REIT (as defined below), and
intends to invest its funds in investments permitted by the terms
of the Company’s Articles of Incorporation and Sections 856
through 860 of the Code (as defined below);
WHEREAS, the
Company is the general partner of the Partnership and intends to
conduct all of its business and make all of its investments in
Properties through the Partnership;
WHEREAS, the
Company and the Partnership desire to avail themselves 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 of the Company 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 foregoing and of the mutual covenants and
agreements contained herein, the parties hereto agree as
follows:
1. DEFINITIONS. As
used in this Agreement, the following terms have the definitions
hereinafter indicated:
ACQUISITION
EXPENSES. Any and all expenses incurred by the Company, the
Partnership, the Advisor, or any Affiliate of either in connection
with the selection, acquisition or development of any Property,
whether or not acquired, including, without limitation, legal fees
and expenses, travel and communications expenses, costs of
appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, and title insurance
premiums.
ADVISOR. Wells
Timberland Management Organization, LLC, a Georgia
limited
liability company, any
successor advisor to the Company, the Partnership or any Person(s)
to which Wells Timberland Management Organization, LLC. or any
successor advisor subcontracts substantially all of its
functions.
AFFILIATE OR
AFFILIATED. An Affiliate of another Person includes only the
following: (i) any Person directly or indirectly controlling,
controlled by, or under common control with such other Person;
(ii) 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; (iii) any legal entity
for which such Person acts as an executive officer, director,
trustee, or general partner, (iv) any Person 10% or more of
whose outstanding voting securities are directly or indirectly
owned, controlled, or held, with power to vote, by such other
Person; and (v) any executive officer, director, trustee, or
general partner of such other Person. An entity shall not be deemed
to control or be under common control with an Advisor-sponsored
program unless (i) the entity owns 10% or more of the voting
equity interests of such program or (ii) a majority of the
board (or equivalent governing body) of such program is comprised
of Affiliates of the entity.
APPRAISED VALUE.
Value according to an appraisal made by an Independent
Appraiser.
ARTICLES OF
INCORPORATION. The Articles of Incorporation of the Company under
Title 2 of the Corporations and Associations Article of the
Annotated Code of Maryland, as amended from time to
time.
ASSET MANAGEMENT
FEE. A monthly fee in an amount equal to one-twelfth of 1.0% of the
sum of (a) the actual amount invested on behalf of the Company
in the Properties (including any incurred or assumed indebtedness
related to the Properties and any capital improvements made
subsequent to the initial investment) plus (b) with respect to
Joint Ventures, the actual amount invested on behalf of the Company
in the Joint Ventures plus the Company’s allocable share of
capital improvements made by the Joint Venture from cash flows
generated by the Joint Venture, until such time as Advisor may
estimate the value of all interests the Company holds in Properties
or Joint Ventures for ERISA reporting purposes; and after such
time, ASSET MANAGEMENT FEE means a monthly fee in an amount equal
to one-twelfth of 1.0% of the greater of (1) the sum of
(x) the actual amount invested on behalf of the Company in the
Properties (including any incurred or assumed indebtedness related
to the Properties and any capital improvements made subsequent to
the initial investment) plus (y) with respect to Joint
Ventures, the actual amount invested on behalf of the Company in
the Joint Ventures plus the Company’s allocable share of
capital improvements made by the Joint Venture from cash flows
generated by the Joint Venture, or (2) the aggregate value of
the Company’s interest in the Properties and Joint Ventures
as established in connection with the most recent estimated
valuation to assist ERISA fiduciaries in fulfilling their annual
valuation and reporting responsibilities.
AVERAGE INVESTED
ASSETS. For a specified period, the average of the aggregate book
value of the assets of the Company invested, directly or
indirectly, in Properties and Loans secured by real estate before
reserves for depreciation, depletion, 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.
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BOARD OF DIRECTORS
OR BOARD. The persons holding such office, as of any particular
time, under the Articles of Incorporation of the Company, whether
they be the Directors named therein or additional or successor
Directors.
BYLAWS. The bylaws
of the Company, as the same are in effect from time to
time.
CAPPED O&O
EXPENSES. All Organizational and Offering Expenses other than
selling commissions and the dealer manager fee as described under
“Plan of Distribution” to the Registration
Statement.
CAUSE. With respect
to the termination of this Agreement, fraud, criminal conduct,
willful misconduct or willful or grossly negligent breach of
fiduciary duty by the Advisor, or a material breach of this
Agreement by the Advisor, provided that (i) the Advisor does
not cure any such material breach within 60 days of receiving
notice of such material breach from the Company or the Partnership,
or (ii) such material breach is not of a nature that can be
remedied within such period.
CODE. Internal
Revenue Code of 1986, as amended from time to time, or any
successor statute thereto. Reference to any provision of the Code
shall mean such provision as in effect from time to time, as the
same may be amended, and any successor provision thereto, as
interpreted by any applicable regulations as in effect from time to
time.
COMPANY. Wells
Timberland REIT, Inc., a corporation organized under the laws of
the State of Maryland.
COMPETITIVE REAL
ESTATE COMMISSION. A real estate or brokerage commission for the
purchase or sale of property which is reasonable, customary, and
competitive in light of the size, type, and location of the
property.
CONTRACT SALES
PRICE. The total consideration received by the Company for the sale
of a Property.
DIRECTOR. A member
of the Board of Directors of the Company.
DISTRIBUTIONS. Any
distributions of money or other property by the Company to owners
of Shares, including distributions that may constitute a return of
capital for federal income tax purposes.
GOOD REASON. With
respect to the termination of this Agreement, (i) any failure
to obtain a satisfactory agreement from any successor to the
Company and the Partnership to assume and agree to perform the
Company’s and the Partnership’s obligations under this
Agreement; or (ii) any material breach of this Agreement by
the Company, provided that (x) the Company does not cure such
material breach within 60 days of receiving notice of such material
breach from the Advisor, or (y) such material breach is not of
a nature that can be remedied within such period.
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GROSS PROCEEDS. The
aggregate cash purchase price of all Shares sold for the account of
the Company through an Offering, without deduction for Organization
and Offering Expenses.
INDEPENDENT
APPRAISER. A person or entity with no material current or prior
business or personal relationship with the Advisor or the
Directors, who is engaged to a substantial extent in the business
of rendering opinions regarding the value of assets of the type
held by the Company, and who is a qualified appraiser of real
estate as determined by the Board. Membership in a nationally
recognized appraisal society such as the American Institute of Real
Estate Appraisers or the Society of Real Estate Appraisers shall be
conclusive evidence of such qualification.
INDEPENDENT
DIRECTOR. A Director who is not and within the last two years has
not been directly or indirectly associated with the Advisor by
virtue of (i) ownership of an interest in the Advisor or its
Affiliates, (ii) employment by the Advisor or its Affiliates,
(iii) service as an officer or director of the Advisor or its
Affiliates, (iv) performance of services, other than as a
Director, for the Company, (v) service as a director or
trustee of more than three real estate investment trusts advised by
the Advisor, or (vi) maintenance of a material business or
professional relationship with the Advisor or any of its
Affiliates. A business or professional relationship is considered
material if the gross revenue derived by the Director from the
Advisor and Affiliates exceeds 5% of either the Director’s
annual gross revenue during either of the last two years or the
Director’s net worth on a fair market value basis. 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 the Advisor, any of
its Affiliates, or the Company.
JOINT VENTURE. Any
joint venture, limited liability company or other Affiliate of the
Company (other than the Partnership) that owns, in whole or in part
on behalf of the Company, any Properties.
LISTING. The term
“LISTING” shall mean that the Shares have been approved
for trading on a national securities exchange. Upon such Listing,
the Shares shall be deemed Listed.
NASAA GUIDELINES.
The NASAA Statement of Policy Regarding Real Estate Investment
Trusts as in effect on the date hereof.
NET INCOME. For any
period, the total revenues applicable to such period, less the
total expenses applicable to such period excluding additions to
reserves for depreciation, depletion, bad debts or other similar
non-cash reserves; provided, however, Net Income for purposes of
calculating total allowable Operating Expenses (as defined herein)
shall exclude the gain from the sale of the Company’s
assets.
OFFERING. Any
offering of Shares that is registered with the SEC, excluding
Shares offered under any employee benefit plan.
OFFERING STAGE. The
period from the commencement of the Company’s initial public
equity offering through the termination of the Company’s last
public equity offering prior to Listing. For purposes of this
definition, “public equity offering” does not include
offerings on behalf of selling stockholders or offerings related to
a dividend reinvestment plan, employee benefit plan or the
redemption of interests in the Partnership.
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OPERATING EXPENSES.
All costs and expenses incurred by the Company, as determined under
generally accepted accounting principles, which in any way are
related to the operation of the Company or to Company business,
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 tax 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 loan
reserves, (v) incentive fees paid in compliance with Section
IV.F of the NASAA Guidelines and (vi) Acquisition Expenses,
real estate commissions on resale of property, and other expenses
connected with the acquisition, disposition, 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).
ORGANIZATION AND
OFFERING EXPENSES. All expenses incurred by and to be paid from the
assets of the Company in connection with and in preparing the
Company for registration of and subsequently offering and
distributing its Shares to the public, which may include but are
not limited to, total underwriting and brokerage discounts and
commissions (including fees of the underwriters’ attorneys);
expenses for printing, engraving and mailing; salaries of employees
while engaged in sales, education and marketing activities; charges
of transfer agents, registrars, trustees, escrow holders,
depositaries and experts; and expenses of registration and
qualification of the sale of the securities, including taxes and
fees, accountants’ and attorneys’ fees.
PARTNERSHIP. Wells
Timberland Operating Partnership, L.P., a Delaware limited
partnership formed to own and operate properties on behalf of the
Company.
PARTNERSHIP
AGREEMENT. The Agreement of Limited Partnership of the Partnership,
as amended from time to time, between the Company, as General
Partner and the Advisor, as the initial Limited Partner.
PERSON. An
individual, corporation, partnership, estate, trust (including a
trust qualified under Section 401(a) or 501(c) (17) of
the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c)
of the Code, association, private foundation within the meaning of
Section 509(a) of the Code, joint stock company or other
entity, or any government or any agency or political subdivision
thereof, and also includes a group as that term is used for
purposes of Section 13(d) (3) of the Securities Exchange
Act of 1934, as amended.
PROPERTY OR
PROPERTIES. Any real property or properties, or any portion
thereof, transferred or conveyed to the Company or the Partnership,
either directly or indirectly.
REIT. A real estate
investment trust under Sections 856 through 860 of the
Code.
REAL ESTATE
DISPOSITION FEE. The fee payable to the Advisor under certain
circumstances in connection with the Sale of one or more Properties
pursuant to Section 8 (b).
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SALE OR SALES.
(i) Any transaction or series of transactions whereby:
(A) the Company or the Partnership sells, grants, transfers,
conveys, or relinquishes its ownership of any Property or portion
thereof, including the lease of any Property consisting of the
building only, and including any event with respect to any Property
which gives rise to a significant amount of insurance proceeds or
condemnation awards; (B) the Company or the Partnership sells,
puts, transfers, conveys, or relinquishes its ownership of all or
substantially all of the interest of the Company or the Partnership
in any joint venture in which it is a co-venturer or partner; or
(C) any joint venture in which the Company or the Partnership
as a co-venturer or partner sells, grants, transfers, conveys, or
relinquishes its ownership of any Property or portion thereof,
including any event with respect to any Property which gives rise
to insurance claims or condemnation awards, but (ii) not
including any transaction or series of transactions specified in
clause (i) (A), (i) (B), or (i) (C) above in
which the proceeds of such transaction or series of transactions
are reinvested in one or more Properties within 180 days
thereafter.
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SPECIAL UNITS. The
separate series of limited partnership interests issued to Wells
Capital, Inc. pursuant to the Partnership Agreement as referenced
in Section 8(c), which Wells Capital, Inc. subsequently
transferred to Wells Timberland Management Organization,
LLC.
STOCKHOLDERS. The
registered holders of the Shares. TERMINATION DATE. The date of
termination of the Agreement.
TERMINATION EVENT.
The termination or nonrenewal of this Agreement (i) in
connection with a merger, sale of assets or other corporate
transaction involving the Company, (ii) by the Advisor for
Good Reason or (iii) by the Company and the Operating
Partnership other than for Cause.
TIMBER MANAGER. Any
entity that has been retained to perform and carry out property
management services at one or more of the Properties, excluding
persons, entities or independent contractors retained or hired to
perform facility management or other services or tasks at a
particular Property.
2%/25% GUIDELINES.
The requirement pursuant to the NASAA Guidelines that, in any
12-month period, total Operating Expenses not exceed the greater of
2% of the Company’s Average Invested Assets during such
12-month period or 25% of the Company’s Net Income over the
same 12-month period.
2. APPOINTMENT. The
Company and the Partnership appoints the Advisor to serve as its
advisor and asset manager as of the Effective Date, on the terms
and conditions set forth in this Agreement, and the Advisor accepts
such appointment as of the Effective Date.
3. DUTIES AND
AUTHORITY OF THE ADVISOR. The Advisor undertakes to use its
reasonable efforts (1) to present to the Company and the
Partnership potential investment opportunities to provide a
continuing and suitable investment program consistent with
(i) the investment objectives and policies of the Company as
determined and adopted from time to time by the Board and
(ii) the investment allocation method described at
Section 10(b) of this Agreement and (2) to manage,
administer, promote, maintain, and improve the Properties on an
overall portfolio basis in a diligent manner. The services of the
Advisor are to be of scope and quality not less than those
generally performed by professional asset managers of other similar
property portfolios. The Advisor shall make available the full
benefit of the judgment, experience and advice of the members of
the Advisor’s organization and staff with respect to the
duties it will perform under this Agreement. The Advisor may engage
one or more Timber Managers, which may include Affiliates of the
Advisor, to manage, promote, and lease the Properties. To
facilitate the Advisor’s performance of these undertakings,
but subject to the restrictions included in Sections 4 and 7 and to
the continuing and exclusive authority of the Board of the Company
and the general partner of the Partnership, the Company and the
Partnership hereby delegate to the Advisor the authority to, and
the Advisor hereby agrees to, either directly or by engaging an
Affiliate:
(A) serve as the
Company’s and the Partnership’s investment and
financial advisor and provide research and economic and statistical
data in connection with the Company’s assets and investment
policies;
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(B) provide the
daily management of the Company and the Partnership and perform and
supervise the various administrative functions reasonably necessary
for the management of the Company and the Partnership;
(C) maintain and
preserve the books and records of the Company, including a stock
ledger reflecting a record of the Stockholders and their ownership
of the Company’s Shares and acting as transfer agent for the
Company’s Shares and maintaining the accounting and other
record-keeping functions at the Property and Company
levels;
(D) investigate,
select, and, on behalf of the Company and the Partnership, engage
and conduct business with such Persons as the Advisor deems
necessary to the proper performance of its obligations hereunder,
including but not limited to consultants, accountants,
correspondents, lenders, technical advisors, attorneys, brokers,
underwriters, corporate fiduciaries, escrow agents, depositaries,
custodians, agents for collection, insurers, insurance agents,
banks, builders, developers, property owners, mortgagors, and any
and all agents for any of the foregoing, including Affiliates of
the Advisor, and Persons acting in any other capacity deemed by the
Advisor necessary or desirable for the performance of any of the
foregoing services, including but not limited to entering into
contracts in the name of the Company and the Partnership with any
of the foregoing;
(E) consult with
the officers and Board and assist the Board in the formulation and
implementation of the Company’s financial policies, and, as
necessary, furnish the Board with advice and recommendations with
respect to the making of investments consistent with the investment
objectives and policies of the Company and in connection with any
borrowings proposed to be undertaken by the Company and the
Partnership;
(F) oversee the
performance by each Timber Manager of its duties, including
collection of payments due from sales of timber and third parties
under contracts related to use of the Property and other assets of
the Company and payment of Property expenses and
maintenance;
(G) conduct
periodic on-site property visits to some or all (as the Advisor
deems reasonably necessary) of the Properties to inspect the
physical condition of the Properties and to evaluate the
performance of the Timber Manager of its duties;
(H) review, analyze
and comment upon the operating budgets, capital budgets, harvest
schedules and leasing plans prepared and submitted by the Timber
Manager and aggregate these property budgets into the
Company’s overall budget;
(I) review and
analyze on-going financial information pertaining to each Property
and the overall portfolio of Properties;
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(J) if a
transaction requires approval by the Board of Directors, deliver to
the Board of Directors all documents requested by them in their
evaluation of the proposed investment in the Property;
(K) formulate and
oversee the implementation of strategies for the administration,
promotion, management, operation, maintenance, improvement,
financing and refinancing, marketing, leasing, and disposition of
Properties on an overall portfolio basis;
(L) subject to the
provisions of Sections 3(M) and 4 hereof, (i) locate, analyze
and select potential investments in Properties, (ii) structure
and negotiate the terms and conditions of transactions pursuant to
which investment in Properties will be made; (iii) make
investments in Properties on behalf of the Company or the
Partnership in compliance with the investment objectives and
policies of the Company; (iv) arrange for financing and
refinancing and make other changes in the asset or capital
structure of, and dispose of, reinvest the proceeds from the sale
of, or otherwise deal with the investments in, Property;
(v) enter into leases, supply agreements and other
income-producing contracts relating to thir
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