1
Exhibit 10.3
ADVISORY, ADMINISTRATIVE SERVICES
AND FACILITIES AGREEMENT
between
NATIONAL HEALTH INVESTORS, INC.
and
NATIONAL HEALTHCORP L.P.
THIS AGREEMENT is dated as of October 17, 1991, between NATIONAL HEALTH
INVESTORS, INC., a Maryland corporation (the "Corporation"), and NATIONAL
HEALTHCORP L.P., a Delaware limited partnership (the "Advisor").
WHEREAS on or about October 15, 1991 pursuant to a plan to reorganize
Advisor and to capitalize the Corporation, Advisor will convey, subject to
certain related liabilities and obligations, all of its right, title and
interest in and to certain real property and certain promissory notes (the
"Conveyance");
WHEREAS immediately following the Conveyance, the Corporation will
lease the real properties back to the Advisor pursuant to that certain Master
Lease Agreement, dated October 17, 1991 (the "Master Lease");
WHEREAS on or about October 15, 1991 and as part of the overall plan to
capitalize the Corporation, the Advisor plans to distribute (the "Distribution")
pro rata to each holder of the Advisor's outstanding Units of limited
partnership interest, all of the shares of common stock of the Corporation, par
value $.01 (the "Shares");
WHEREAS contemporaneously with the Conveyance and the Distribution, the
Corporation plans to issue certain debentures (the "Debentures") the proceeds of
which are to be used to enable the Corporation to expand its business;
WHEREAS the Corporation intends to qualify as a real estate investment
trust as defined in the Internal Revenue Code of 1986, as amended, as the same
may be amended or modified from time to time;
WHEREAS the Corporation desires to avail itself of the Advisor's
experience, sources of information, advice, and assistance and of certain
personnel and 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 Corporation (the
"Directors"), as provided herein;
2
WHEREAS the Advisor is willing to undertake to render such services,
subject to the supervision of the Directors, on the terms and conditions
hereinafter set forth; and
WHEREAS the relationships established by the Advisor and the
Corporation hereunder are independent of and unaffected by the relationships of
the parties established under the Master Lease.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the Corporation and the Advisor agree as follows:
1. Duties of Advisor. The Corporation hereby engages the Advisor, and
the Advisor undertakes to use its best efforts (a) to present to the Corporation
a continuing and suitable investment program consistent with the investment
policies and objectives of the Corporation and investment opportunities of a
character consistent with such investment program as the Directors may adopt
from time to time, (b) to manage the day-to-day affairs and operations of the
Corporation and (c) to provide such administrative services and facilities as
are appropriate for such management. In performance of such undertakings,
subject to the supervision and approval of the Directors and upon their
direction, and consistent with the provisions of the Articles of Incorporation
and Bylaws of the Corporation and of any policies for the Corporation from time
to time established by the Directors after consultation with the Advisor, the
Advisor shall:
(i) make or have made for the Corporation such research reports,
economic and statistical data, evaluations, analyses, opinions
and recommendations as it may deem necessary or desirable or as the
Directors of the Corporation may request with respect to investment
opportunities available to the Corporation;
(ii) formulate a program for the investment of the Corporation's
assets;
(iii) select and evaluate potential projects and investments for
the Corporation;
(iv) make recommendations as to the nature, terms and amount of
involvement or participation in such project or investments and the
timing thereof;
(v) evaluate and make recommendations as to the sale or other
disposition of assets of the Corporation;
(vi) make such further recommendations as to the investments of the
Corporation as the Advisor may deem necessary or desirable;
2
3
(vii) investigate and make recommendations with respect to selection
of and relations with consultants, lenders and others (including
without limitation, tenants, property managers, accountants, mortgage
loan originators, correspondents and services, architects, engineers
and other technical advisers, attorneys, real estate and mortgage loan
bankers, brokers and dealers, corporate fiduciaries, escrow agents,
depositories, custodians, agents for collection, insurers, insurance
agents, banks, builders and developers, and persons acting in any other
capacity), in connection with the Corporation's properties;
(viii) provide office and clerical facilities adequate for the
Corporation's operations and affairs;
(ix) act, or obtain for the Corporation the services of others to
act, as may be required to provide accounting, auditing, custodial,
transfer agent, registrar and other similar services, to disburse and
collect the funds of the Corporation, to pay the debts and fulfill the
obligations of the Corporation, to handle the prosecution and
settlement of any claims of the Corporation, to oversee, handle,
prepare and distribute or cause to be distributed all communications
with the existing and future holders of the Corporation's securities,
including the holders of the Corporation's Shares and Debentures, and,
in connection with the foregoing, to investigate, select and conduct
relations with custodians, transfer agents, registrars, proxy
solicitors, attorneys, accountants, auditors, brokers and investors,
and others as necessary in connection with the Corporation's
operations;
(x) advise the Corporation concerning developments in the
healthcare and real estate investment trust industries appropriate or
useful to the Corporation's existing and potential future business and
investments;
(xi) make recommendations to the Directors as to appropriate
distributions by the Corporation to its stockholders; and
(xii) maintain or cause to be maintained records of activities
reasonably requested by the Corporation.
2. Delegation. With the consent of the Directors from time to time, the
Advisor may delegate to or use the services of any third party, including any
Affiliate of the Advisor, in performing its duties hereunder provided that such
third party is subject to the supervision of the Advisor. The services to be
provided to the Corporation by the Advisor shall, at the direction of the
Directors, be provided to any subsidiaries of the Corporation.
3
4
3. No Partnership or Joint Venture. The Corporation and the Advisor are
not partners or joint venturers with each other and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.
4. Records. At all times, the Advisor shall keep proper books of
account and records relating to services performed hereunder, which books of
account and records shall be accessible for inspection by the Corporation at any
time during ordinary business hours. Annually, and more frequently as reasonably
requested by the Directors, the Advisor shall report to the Directors its
estimated costs in providing the services for the Corporation hereunder (by
category of services to the extent practicable) and provide the Directors with
such information as is reasonably obtainable by the Advisor concerning the cost
to other real estate investment trusts specializing in healthcare facility
investments of administrative and advisory services comparable to those that are
the subject matter of this Agreement in order that the Directors may evaluate
the performance of the Advisor and the efficiency of the arrangements provided
for in this Agreement.
5. Qualification as a Real Estate Investment Trust. 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 Directors of which the Advisor has written notice, would adversely affect
the status of the Corporation as a real estate investment trust as defined and
limited in Sections 856-860 of the Internal Revenue Code of 1986, as amended,
which would violate any law, rule, regulation or statement of policy or any
governmental body or agency having jurisdiction over the Corporation or over its
securities, or which would otherwise not be permitted by the Corporation's
Articles of Incorporation and Bylaws.
6. Bank Accounts. The Advisor, at the expense of the Corporation, may
establish and maintain one or more bank accounts in its own name, and may
collect and deposit into any such account or accounts, and disburse from any
such account or accounts, any money on behalf of the Corporation, under such
terms and conditions as the Directors may approve, provided that no funds in any
such account shall be commingled with funds of the Advisor; and the Advisor
shall from time to time render appropriate accounting of such collections and
payments to the Directors and to the auditors of the Corporation.
7. Bond. The Advisor, if and to the extent that the Directors require,
shall maintain a fidelity bond with a responsible surety company in such amount
as may be required by the Directors from time to time, covering all directors,
officers, employees and agents of the Advisor handling funds of the Corporation
and any investment documents or records pertaining to
4
5
investments of the Corporation. Such bond shall inure to the benefit of the
Corporation in respect of losses of any such property from acts of such
Directors, officers, employees and agents through theft, embezzlement, fraud,
negligence, error or omission or otherwise. The premium for said bond shall be
an expense of the Corporation.
8. Information Furnished Advisor. The Directors shall at all times keep
the Advisor fully informed with regard to the investment policy of the
Corporation, the capitalization policy of the Corporation and generally their
then current intentions as to the future of the properties and other investments
of the Corporation. In particular, the Directors shall notify the Advisor
promptly of their intention to sell or otherwise dispose of any of the
Corporation's investments or to make any new investment. The Corporation shall
furnish the Advisor with a certified copy of all financial statements, a signed
copy of each report prepared by independent certified public accountants and
such other information with regard to the Corporation's affairs as the Advisor
may from time to time reasonably request.
9. Consultation and Advice. In addition to the services described
above, the Advisor shall consult with the Directors, and shall, at the request
of the Directors or the officers of the Corporation, furnish advice and
recommendations with respect to other aspects of the business and affairs of the
Corporation. In general, the Advisor shall inform the Directors of any factors
which come to its attention which would influence the policies of the
Corporation, except to the extent that giving such information would involve a
breach of fiduciary duty.
10. Compensation to Advisor.
(a) The Corporation shall pay the Advisor for its services
hereunder annual compensation of $1,625,000, payable in monthly
instalments of $135,417 on the last day of each month, adjusted as set
forth in Subsection 10(d) below.
(b) The payment of such compensation to the Advisor shall be
conditioned upon the Corporation's having Funds From Operations (as
defined in Subsection 10(c) below) in each year equal to at least the
product ("Dividend Requirement") of (i) $2.00 times (ii) the average
number of shares of the Corporation outstanding on each dividend record
date during such year, and upon the Corporation's paying dividends in
each year at least equal to such Dividend Requirement. In the event
that the lower of (i) Funds From Operations and (ii) the actual
dividends paid in any year is less than the Dividend Requirement for
any year, the compensation payable to the Advisor in respect of such
year shall be reduced by the amount of such shortfall (the "Shortfall
Amount") and the Advisor shall repay to the Corporation any portion of
the Shortfall
5
6
Amount previously received for such year. The Advisor shall be entitled
to payment of any Shortfall Amount in any subsequent year to the extent
that Funds From Operations for such subsequent year exceeds the
Dividend Requirement for such subsequent year (and provided that the
actual dividends paid by the Corporation in such subsequent year are at
least equal to the Dividend Requirement for such year), together with
interest thereon, at two percent over the prime lending rate of the
Advisor's principal bank in Tennessee, compounded annually, from the
time that the same would otherwise have been payable to the Advisor or,
as the case may be, was repaid by the Advisor to the Corporation.
(c) As used in this Section 10, "Funds From Operations" means
the consolidated net income of the Corporation computed in accordance
with generally accepted accounting principles, plus depreciation and
amortization, less the amount of any capital gains or plus the amount
of any capital losses included in such net income, and before applying
the provisions of subsection 10(b) above.
(d) For each year during the term of this Agreement after 1992
that the Corporation has Funds From Operations Per Share in excess of
its Funds From Operations Per Share in 1992, the compensation provided
for in Subsection 10(a) shall be increased by the percentage that is
equal to the percentage increase of the amount of Funds From Operations
Per Share in such year over the greater of (i) amount of Funds From
Operations Per Share in 1992 or (ii) $2.00. In the event that
operations in 1993 and later years result in an increase in
compensation for any such year, the amount of such increase not
previously paid to the Advisor shall be paid promptly following the
determination of such increase, and monthly instalments of compensation
in the following year may be based upon the increased compensation
determined for such preceding year subject to repayment by the Advisor
to the extent that the amount paid in such following year exceeds the
amount of compensation ultimately determined with respect to such
following year. Funds From Operations Per Share in any year shall be
determined by dividing the Corporation's Funds From Operations in that
year by the average number of shares of Common Stock outstanding during
that year (such average number being calculated in accordance with
generally accepted accounting principles). The amount of any increase
in compensation for the year in which this Agreement terminates shall
be determined by annualizing the Corporation's Funds From Operations
for the number of full months in such year prior to the date of
termination.
11. Expenses of the Advisor. Except as provided in Section 12 and without
regard to the amount of compensation received hereunder by the Advisor, the
Advisor shall pay all expenses in
6
7
performing its obligations hereunder, including and in addition to
the following expenses:
(a) the cost of any accounting, statistical or bookkeeping
equipment necessary for the maintenance of the books and records of the
Corporation;
(b) employment expenses of the officers and directors and
personnel of the Advisor and all expenses, including travel expenses,
of the Advisor, incidental to the investigation and acquisition of
properties for the Corporation prior to the time the Directors
definitively decide to acquire the property or to have the Advisor
continue with the acquisition process, whether the property is acquired
or not, and after the Directors definitively decide to dispose of a
property;
(c) advertising and promotional expenses incurred in seeking
and disposing of investments for the Corporation;
(d) rent, telephone, utilities, office furniture and
furnishings and other office expenses incurred by or allocable to the
Advisor for its own benefit and account regardless of whether incurred
or used in connection with rendering the services to the Corporation
provided for in this Agreement;
(e) all costs and expenses which the Advisor is obligated to
pay to the Corporation or others under any lease of property by the
Advisor from the Corporation; and
(f) all miscellaneous administrative and other expenses of the
Advisor, whether or not relating to the performance by the Advisor of
its functions hereunder.
12. Expenses of the Corporation. The Corporation shall pay the following
expenses of the Corporation (except to the extent that the Advisor is
responsible for any such expenses as tenant of any property leased from the
Corporation):
(a) the cost of money borrowed by the Corporation;
(b) taxes on income and taxes and assessments on real property
and all other taxes applicable to the Corporation, including without
limitation, franchise and excise fees;
(c) except as provided in Section 11 hereof, all ordinary and
necessary expenses incurred with respect to and allocable to the
prudent operation and business of the Corporation, including without
limitation, any fees, salaries and other employment costs, taxes and
expenses paid to Directors, officers and employees of the Corporation
who are not also employees of the Advisor;
7
8
(d) fees and expenses paid to independent contractors,
appraisers, consultants, attorneys, managers and other agents retained
by or on behalf of the Corporation and expenses directly connected with
the acquisition, financing, refinancing, disposition and ownership of
real estate interests or of other property (including insurance
premiums, legal services, brokerage and sales commissions, maintenance,
repair and improvement of property);
(e) insurance as required by the Directors (including
Directors' liability insurance);
(f) expenses connected with payments of dividends or
distributions in cash or any other form made or caused to be made by
the Directors to shareholders of the Corporation and expenses connected
with payments of interest to holders of the Corporation's Debentures;
(g) all expenses connected with communications to holders of
securities of the Corporation and the other bookkeeping and clerical
work necessary in maintaining relations with holders of securities,
including the cost of printing and mailing certificates for securities
and proxy solicitation materials and reports to holders of the
Corporation's securities;
(h) transfer agent's, registrar's, dividend disbursing
agent's, dividend reinvestment plan agent's and indenture trustee's
fees and charges;
(i) legal and auditing fees and expenses of the Corporation;
and
(j) legal, auditing, accounting, underwriting, brokerage,
listing, registration and other fees and printing, engraving and other
expenses and taxes incurred in connection with the organization of the
Corporation and the issuance, distribution, transfer, registration and
listing of the Corporation's securities.
13. Other Activities of the Advisor. Nothing herein contained shall prevent
the Advisor or any of its officers, directors or employees or any of its
affiliates from engaging in other business activities related to real estate
investments, from undertaking investments permitted of them by the Corporation's
Bylaws or from acting as advisor to any other person or entity even though
having investment policies similar to the Corporation, and the Advisor and its
officers, directors or employees and any of its Affiliates shall be free from
any obligation to present to the Corporation any particular investment
opportunity which comes to the Advisor or such persons, regardless of whether
such opportunity
8
9
is within the Corporation's investment policies; provided, however, that when
the Advisor has the ability to present a particular investment opportunity which
is suitable for purchase by the Corporation and any other entities as to which
the Advisor has advisory responsibility, the Advisor will review the investment
portfolio of each entity and will decide which entity will acquire a particular
property on the basis of such factors as it deems appropriate including, among
others, cash-flow, the effect of the acquisition on diversification of the
portfolio of each, the estimated income tax effects of the purchase, the amount
of funds available and the length of time such funds have been available for
investment. In the event a particular property is equally appropriate for
investment by more than one entity, the Advisor will offer the investment to the
entity whose funds have been available for the longest period of time.
14. Term; Termination of Agreement. This Agreement shall continue in force
from the date hereof through December 31, 1996 and thereafter from year to year
unless earlier terminated as herein provided; provided, however, that either
party may terminate this Agreement at any time on or after January 1, 1993,
specified in a written notice of termination given to the other party at least
ninety days prior to the effective date of such termination; and provided,
further, that the Corporation may terminate this Agreement at any time during
the continuation of any event described in Section 17 hereof or otherwise for
cause. Upon the termination of this Agreement for any reason the Advisor shall
cooperate with the Corporation to provide an orderly management transition.
15. Amendments. This Agreement shall not be changed, modified, terminated or
discharged in whole or in part except by an instrument in writing signed by both
parties hereto, or their respective successors or assigns, or otherwise as
provided herein.
16. Assignment. This Agreement shall not be assigned or otherwise transferred
by the Advisor without the prior written consent of a majority of the Directors
including a majority of the Directors not affiliated with the Advisor. This
Agreement shall not be assigned by the Corporation without the consent of the
Advisor, except in the case of assignment by the Corporation to a corporation,
association, trust or other organization which is a successor to the
Corporation. Such successor shall be bound hereunder and by the terms of said
assignment in the same manner as the Corporation is bound hereunder.
17. Default, Bankruptcy, Etc. At the option solely of the Corporation upon
vote of a majority of its Directors, this Agreement shall be and become
terminated immediately upon written notice of termination from the Corporation
to the Advisor if any of the following events shall occur:
9
10
(a) If the Advisor shall violate any provision of this
Agreement, and after notice of such violation shall not cure such
default within thirty days; or
(b) If 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 or of all or substantially all of its
property by reason of the foregoing, or approving any petition filed
against the Advisor for its reorganization, and such adjudication or
order shall remain in force or unstayed for a period of thirty days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or file a petition seeking reorganization under the Federal
bankruptcy laws, or for relief under any law for the relief of debtors,
or shall consent to the appointment of a receiver of itself or of all
or substantially all its property, or shall make a general assignment
for the benefit of creditors, or shall admit in writing its inability
to pay its debts generally, as they become due.
The Advisor agrees that if any event specified in subsections (b) and
(c) of this Section 17 shall occur, it will give written notice thereof to the
Directors within seven days after the occurrence of such event.
18. Action Upon Termination. From and after the effective date of termination
of this Agreement, pursuant to Sections 14, 16 or 17 hereof, the Advisor, except
as provided in Section 10, shall not be entitled to compensation for further
services hereunder but shall be paid all compensation accruing to the date of
termination, including compensation the payment of which may have been deferred
as a result of the condition to payment set forth in Section 10(b) hereof. The
Advisor shall forthwith upon such termination:
(a) pay over to the Corporation all moneys collected and held
for the account of the Corporation pursuant to this Agreement, after
deducting any accrued compensation and reimbursement for its expenses
to which it is then entitled;
(b) deliver to the Directors a full accounting, including a
statement showing all payments collected by it and a statement of all
moneys held by it, covering the period following the date of the last
accounting furnished to the Directors;
(c) deliver to the Directors all property and documents of the
Corporation then in the custody of the Advisor in its capacity as such;
and
10
11
(d) cooperate with the Directors to provide an orderly
management transition.
19. Miscellaneous. The Advisor assumes no responsibility under this Agreement
other than to render the services called for hereunder in good faith, and shall
not be responsible for any action of the Directors in following or declining to
follow any advice or recommendations of the Advisor. Neither the Advisor nor its
partners nor any shareholders, directors, officers or employees of any of its
partners shall be liable to the Corporation, the Directors, the holders of
securities of the Corporation or to any successor or assign of the Corporation
for any act taken in good faith and in a manner reasonably believed by the
Advisor or the person acting on behalf of the Advisor to be in the best
interests of the Corporation, or for any other act except an act constituting
bad faith, willful misfeasance, gross negligence or reckless disregard of its
duties.
20. 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 Directors and/or the Corporation:
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇
Exchange Place
Boston, Massachusetts 02109
11
12
The Advisor:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
National HealthCorp, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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 20.
21. 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. Governing Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of Maryland as at the time
in effect.
IN WITNESS WHEREOF, the Corporation and the Advisor, each by a duly
authorized officer have signed and delivered this Agreement under their
respective corporate seals all as of the day and year first above written.
NATIONAL HEALTH INVESTORS, INC.
By
--------------------------------
Its Secretary
-------------------------------
NATIONAL HEALTHCORP L.P.
By: NHC, Inc., its managing
partner
By
--------------------------------
Its President
-------------------------------
12
