ADVISORY AGREEMENT AMONG LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC., LIGHTSTONE VALUE PLUS REIT LP

Exhibit 10.2

 

FORM OF

ADVISORY AGREEMENT AMONG

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.,

LIGHTSTONE VALUE PLUS REIT LP

and

LIGHTSTONE VALUE PLUS REIT LLC

 

This Advisory Agreement (this “Agreement”) dated as of [                    ], 2004 is among Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (the “Company”), Lightstone Value Plus REIT LP, a Delaware limited partnership (the “OP”), and Lightstone Value Plus REIT LLC, a Delaware limited liability company (the “Advisor”). The Company and the OP are sometimes referred to herein collectively as the “Advisees” and each individually as an “Advisee.”

 

W I T N E S S E T H:

 

WHEREAS, the Company is a Maryland corporation created in accordance with applicable provisions of the Maryland General Corporation Law, as amended from time to time (the “Maryland GCL”); and

 

WHEREAS, the purposes of the Company are, as determined from time to time by the board of directors of the Company (the “Board of Directors”), to engage in any lawful business or activity for which a corporation may be created under the Maryland GCL; and

 

WHEREAS, the Company is the general partner of the OP; and

 

WHEREAS, the Company desires, on its own behalf and as general partner of the OP, 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, all as provided herein; and

 

WHEREAS, the Advisor is willing 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 contained, IT IS AGREED as follows:

 

1. Definitions. Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Company’s Charter (as herein defined), and the following terms, as used herein, shall have the meanings set forth below:

 

(a) “Acquisition Expenses” shall mean expenses related to the Advisee’s selection of, and investment in, real properties and mortgage investments and other investments, whether or not acquired or made, including but not limited to advertising costs, brokerage fees, environmental, engineering and other due diligence expenses, legal fees and expenses, travel and communications expenses, cost of appraisals, accounting fees and expenses, title insurance and miscellaneous other expenses.

 

(b) “Acquisition Fee” shall have the meaning set forth in Section 11(a)(i).

 

(c) “Affiliate” means a Person who is (i) in the case of an individual, any relative of such Person, (ii) any officer, director, trustee, partner, manager, employee or holder of ten percent (10%) or more of any class of the voting securities of or equity interest in such Person; (iii) any corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with such Person; or (iv) any officer, director, trustee, partner, manager, employee or holder of ten percent (10%) or more of the outstanding voting securities of any corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with such Person. For purposes of this definition,

the term “controls,” “is controlled by,” or “is under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting rights, by contract or otherwise.

 

(d) “Asset Management Fee” shall have the meaning set forth in Section 11(a)(ii).

 

(e) “Average Invested Assets” shall mean the average, at the end of each calendar month during the calendar quarter in respect of which an Asset Management Fee is being calculated, of the aggregate book value of the Advisees’ assets invested in equity interests in and loans secured by real estate, before reserves for depreciation or bad debt or other similar non-cash reserves.

 

(f) “Board of Directors” shall have the meaning set forth in the recitals hereto.

 

(g) “Cause” shall mean (x) fraud, criminal conduct, willful misconduct or illegal or negligent breach of fiduciary duty by the Advisor or a breach of this Agreement by the Advisor; or (y) if any of the following events occur: (i) the Advisor shall violate any material provision of this Agreement, and after written notice of such violation, shall not cure such default within 30 days or have begun action within 30 days to cure the default which shall be completed with reasonable diligence, (ii) the Advisor shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or an order shall be made by a court of competent jurisdiction for the appointment of a receiver, liquidator, or trustee of the Advisor, for all or substantially all of its property by reason of the foregoing, or if a court of competent jurisdiction approves any petition filed against the Advisor for reorganization, and such adjudication or order shall remain in force or unstayed for a period of 30 days, (iii) the Advisor shall institute proceedings for voluntary bankruptcy or shall file a petition seeking reorganization under the federal bankruptcy laws, or for relief under any law for relief of debtors, or shall consent to the appointment of a receiver for itself or for all or substantially all of its property, or shall make a general assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts, generally, as they become due.

 

(h) “Change of Control” shall mean a change of control of the Company of a nature that would be required to be reported in response to the disclosure requirements of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as enacted and in force on the date hereof, whether or not the Company is then subject to such reporting requirements; provided, however, that, without limitation, a Change of Control shall be deemed to have occurred if: (i) any “person” (within the meaning of Section 13(d) of the Exchange Act, as enacted and in force on the date hereof) is or becomes the “beneficial owner” (as that term is defined in Rule 13d-3, as enacted and in force on the date hereof, under the Exchange Act) of securities of the Company representing 9.8% or more of the combined voting power of the Company’s securities then outstanding; (ii) there occurs a merger, consolidation or other reorganization of the Company which is not approved by the Board of Directors; (iii) there occurs a sale, exchange, transfer or other disposition of substantially all of the assets of the Company to another entity, which disposition is not approved by the Board of Directors; or (iv) there occurs a contested proxy solicitation of the Shareholders of the Company that results in the contesting party electing candidates to a majority of the Board of Directors’ positions next up for election.

 

(i) “Charter” shall mean the Articles of Incorporation of the Company dated as of 30, 2004, as amended from time to time.

 

(j) “Cumulative Non-Compound Return” shall mean, for any period for which a calculation thereof is being paid, the percentage resulting from dividing (i) the total distributions paid on each distribution payment date during such period by (ii) the product of (x) the daily average adjusted investor capital for such period and (b) the number of years (including fractional years) elapsed during such period (based on a year of 365 days).

 

(k) “Election Notice” shall have the meaning set forth in Section 13(b).

 

(l) “Funds From Operations” shall mean net income (computed in accordance with GAAP), excluding gains or losses from debt restructuring and sales of properties, plus depreciation of real property and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

 

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(m) “Funds From Operations Per Weighted Average Share” shall mean the amount equal to four (4) times the Funds From Operations per weighted average Share for the Company for the quarter in which an Election Notice is delivered, based on and as described in the quarterly report of the Company delivered to its stockholders for such quarter.

 

(n) “GAAP” shall mean United States generally accepted accounting principals, consistently applied.

 

(o) “Good Reason” shall mean, with respect to the termination of this Agreement, (x) any failure to obtain a satisfactory agreement from any successor to an Advisee to assume and agree to perform such Advisee’s obligations under this Agreement; or (y) any material breach of this Agreement of any nature whatsoever by an Advisee.

 

(p) “Independent Director” shall have the meaning set forth in the By-laws of the Company, as amended from time to time.

 

(q) “Initial Term” shall have the meaning set forth in Section 17(a).

 

(r) “Partnership Agreement” shall mean the Agreement of Limited Partnership of the OP dated as of 30, 2004, as amended and restated from time to time.

 

(s) “Person” shall mean an individual, corporation, partnership, joint venture, association, company (whether of limited liability or otherwise), trust, bank or other entity, or government or any agency or political subdivision of a government.

 

(t) “Preferred Return” shall mean the receipt by the stockholders of the Company of (i) a Cumulative Non-Compound Return of 7% per year on such stockholders’ net investment, and (ii) the amount of such net investment.

 

(u) “Prospectus” shall mean the final prospectus of the Company in connection with the initial registration of the Shares filed with the SEC on Form S-11, as amended and supplemented from time to time.

 

(v) “SEC” shall mean the United States Securities and Exchange Commission.

 

(w) “Share” shall mean a share of the Common Stock, par value $0.01, of the Company.

 

(x) “Special Limited Partner” shall have the meaning set forth in the Partnership Agreement.

 

(y) “Special Liquidation Distribution” shall mean the liquidation distributions received by the Special Limited Partner pursuant to Section 13.2 of the Partnership Agreement.

 

(z) “Special Termination Distribution” shall mean the termination distribution set forth in Section 13.3 of the Partnership Agreement.

 

(aa) “Termination Fee” shall have the meaning set forth in Section 17(b).

 

(bb) “Total Operating Expenses” of a Person means the aggregate of all expenses paid or incurred by such Person, but excluding organization and offering expenses, interest payments, taxes, non-cash expenditures, any Acquisition Fee or other acquisition expenses.

 

2. Duties of Advisor. The Company, on its own behalf, and as general partner of the OP, hereby retains and appoints the Advisor as the advisor of the Company and the OP to perform the services hereinafter set forth, and the Advisor hereby accepts such appointment, all subject to the terms and conditions hereinafter set forth. In the performance of this undertaking, subject to the supervision of the Board of Directors and consistent with the provisions of the Company’s Charter and the Agreement of Limited Partnership of the OP (the “Partnership Agreement”), the Advisor shall devote sufficient resources to the administration of the Company to discharge is obligations hereunder and shall:

 

a. obtain for the Advisees, furnish and/or supervise the services necessary to perform any ministerial functions in connection with the management of the day-to-day operations of the Advisees;

 

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b. use its best efforts to seek out, present and recommend to the Advisees, whether through its own efforts or those of third parties retained by it, suitable investment opportunities that are consistent with the Advisees’ respective investment objectives and policies and acquisition strategy and objectives, as adopted by the Board of Directors from time to time, and negotiate on behalf of the Advisees with respect to potential investments or the disposition thereof;

 

c. exercise absolute discretion, subject to the Board of Directors’ review, in decisions to originate, acquire, retain or sell real properties, provided, that, the Advisor may acquire on behalf of the Advisees any real property with purchase price that is less than $15,000,000, or finance such an acquisition on the Advisees’ behalf, without the prior approval of the Board of Directors if and to the extent that:

 

i. the proposed acquisition or financing would not, if consummated, violate or conflict with the investment guidelines of the Advisees as set forth in the Prospectus;

 

ii. the proposed acquisition or financing would not, if consummated, violate the restriction set forth in section 2(f) below; and

 

iii. the consideration proposed to be paid for such real property does not exceed the fair market value of such property, as determined by a qualified independent real estate appraiser selected in good faith by the Advisor and acceptable to the Independent Directors;

 

d. recommend investment opportunities consistent with the Advisees’ respective investment objectives and policies and negotiate on behalf of the Advisees with respect to potential investments or the disposition thereof;

 

e. structure the terms and conditions pursuant to which acquisitions of properties will be made, subject to the Board of Directors’ review;

 

f. arrange for financing and refinancing of properties, subject to the Board of Directors’ prior approval if such financing or refinancing, when consummated causes the total leverage on each such property or on all such properties in the aggregate to exceed 75% of such property’s or properties’, as the case may be, fair market value;

 

g. obtain for the Advisees such other services as may be required in acquiring or disposing of investments, disbursing and collecting the funds of the Advisees, paying the debts and fulfilling the obligations of the Advisees, and handling, prosecuting and settling any claims of the Advisees;

 

h. obtain for the Advisees such services as may be required for property management, leasing, mortgage brokerage and servicing, and other activities relating to the investment portfolio of the Advisees;

 

i. supervise the servicing of the Advisees’ loan portfolios;

 

j. administer the Advisee’s respective bookkeeping and accounting functions, and prepare, or cause to be prepared, statements and other relevant information for distribution to stockholders or partners, as the case may be, including annual and quarterly reports and any filings required by regulatory authorities;

 

k. monitor operations and expenses of the Advisees;

 

l. from time to time, or as requested by the Board of Directors, make reports to the Advisees as to its performance of the foregoing services;

 

m. perform any other powers of the Board of Directors or the Company (as general partner of the OP) which (with respect to the Company) are set forth in the Charter and the Partnership Agreement, as applicable, which may be delegated to it by the Board of Directors from time to time;

 

n. render such other services as the Board of Directors deems appropriate; and

 

o. do all things necessary to assure its ability to render the services contemplated herein.

 

3. Fiduciary Relationship. The Advisor, as a result of its relationship with the Advisees pursuant to this Agreement, stands in a fiduciary relationship with the stockholders of the Company and the partners of the OP.

 

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4. No Partnership or Joint Venture. The Advisees and the Advisor are not partners or joint venturers with each other and nothing herein shall be construed to make them partners or joint venturers or impose any liability as such on either of them.

 

5. Records. At all times, the Advisor shall keep books of account and records relating to services performed hereunder, which books of account and records shall be accessible for inspection by the Advisees and the Advisee’s appointees at any time during the ordinary business hours of the Advisor.

 

6. REIT Qualification; Other Limitations on Advisor Actions. Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from any action which, in its sole judgment made in good faith, or, in the judgment of the Board of Directors provided that the Board of Directors give the Advisor written notice to such effect, would (a) adversely affect the status of the Company as a real estate investment trust pursuant to Section 856 of the Code; (b) cause the Advisees to be classified as an “investment company” for purposes of the Investment Company Act of 1940, as amended, (c) cause the OP to be classified other than as a partnership for purposes of the Code; (d) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Advisees or over their securities, or (e) be prohibited by the Company’s Charter or the Partnership Agreement of the OP.

 

7. Bank Accounts. The Advisor may establish and maintain one or more bank accounts in the name of the Advisees or in its own name as agent for the Advisees and may collect and deposit in and disburse from any such account, any money on behalf of the Advisees, under such terms and conditions as the Board of Directors may approve, provided that no funds in such account shall be commingled with funds of the Advisor. From time to time and upon appropriate request, the Advisor shall render appropriate accounting of such collections and payments to the Board of Directors and the auditors of the Advisees.

 

8. Bond. If required by the Board of Directors, the Advisor will maintain a fidelity bond with a responsible surety company in such amounts as may be required by the Board of Directors, covering all members or partners thereof together with employees and agents of the advisor handling funds of the Advisees and investment documents or records pertaining to investments of the Advisees. Such bonds shall inure to the benefit of the Advisees in respect of losses from acts of such partner