MANAGEMENT AGREEMENT
THIS AGREEMENT, dated as of August __, 1993 by and between Commercial
Assets, Inc., a Maryland corporation (the "Company"), and Financial Asset
Management Corporation, a Delaware corporation (the "Manager").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Manager to manage the
assets of the Company and to perform administrative services for the Company in
the manner and on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used but not defined
herein shall have the respective meanings assigned them below.
(a) "Affiliate" means, when used with reference to a specified
person, (i) any person that directly or indirectly controls or is controlled by
or is under common control with the specified person, (ii) any person that is an
officer, director or employee of, partner in or trustee of, or serves in a
similar capacity with respect to, the specified person, or of which the
specified person is an officer, director or employee of, partner in or trustee
of or with respect to which the specified person serves in a similar capacity,
(iii) any person that, directly or indirectly, is the beneficial owner of 5% or
more of any class of equity securities issued by the specified person, or any
person 5% or more of whose equity securities are, directly or indirectly
beneficially owned by such other person, or (iv) any person that has a material
business or professional relationship with the specified person, PROVIDED,
however, that a person shall not be deemed to be an Affiliate of the Manager or
of any person that is an Affiliate of the Manager solely by reason of servicing
as a director of one or more investment companies of which the Manager
or an Affiliate of the Manager serves as investment advisor or in any other
capacity;
(b) "Affiliated Issuer" means any Person that issues Mortgage-Backed
Obligations and which is organized by or on behalf of the Company;
(c) "Agreement" means this Management Agreement, as amended from time
to time;
(d) "Average Invested Assets" for any period means the average of the
aggregate book value of the consolidated assets of the Company, its trusts and
subsidiaries, computed in accordance with GAAP, invested, directly or
indirectly, in equity interests in and loans secured by real estate, including
assets that are pledged to secure Mortgage-Backed Obligations, after reserves
for depreciation or bad debts or other similar noncash reserves, less the book
value of a minority interest (the portion of equity interest in a Mortgage-
Backed Obligation not owned by the Company) and the liabilities associated with
issued and outstanding Mortgage-Backed Obligations of the Company, its trusts
and subsidiaries, computed for any period by adding the Average Invested Assets
at the end of each month during such period and dividing by the number of months
in the period (provided that Average Invested Assets shall not include cash,
certificates of deposit, treasury instruments and other non-real estate related
assets);
(e) "Average Net Worth" means for any period, the gross proceeds of
all offerings of equity securities of the Company times the number of calendar
days during such period that the proceeds of each such offering were available
for use by the Company divided by the total number of calendar days in such
period, together with (a) for the first quarter of the current fiscal year, the
Company's Tax Retained Earnings (Losses) at the beginning of the first quarter
or (b) for each subsequent year-to-date cumulative quarterly period of the year
for which a calculation is required pursuant to Section 9(b) hereof, the average
of the Company's Tax Retained Earnings (Losses) computed by adding the Company's
Tax Retained Earnings (Losses) as of the beginning of each fiscal quarter during
such year-to-date period divided by the number of quarters in such period. A
sample calculation of Average Net Worth is shown in Exhibit A;
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(f) "Board of Directors" means the Board of Directors of the Company;
(g) "CMO Administration Services" means the services provided by the
Manager pursuant to Section 2(q) hereof;
(h) "CMO Issuance Services" means the services provided by the
Manager pursuant to Section 2(p) hereof;
(i) "Commitment" means, with respect to any Mortgage Instrument, the
agreement containing the terms pursuant to which the Company agrees to acquire
on a forward basis such Mortgage Instrument from any Person;
(j) "Company" means Commercial Assets, Inc., a Delaware corporation,
for all purposes; provided, however, that with respect to references to Series
of Mortgage-Backed Obligations issued by the Company, the term "Company" shall
include subsidiaries of the Company which issue such Mortgage-Backed
Obligations;
(k) "Conforming Mortgage Loan" means a mortgage loan that complies
with the requirements for inclusion in a guaranty or purchase program sponsored
by any of FNMA, FHLMC or GNMA;
(l) "Conventional Mortgage Loan" means a mortgage loan that is not
insured by the FHA or guaranteed by the VA;
(m) "Direct Issuance Costs" means all fees and expenses incurred in
connection with the issuance of Mortgage-Backed Obligations issued or caused to
be issued by the Company, including trustee, accounting, consulting, legal,
rating agency, registration, printing and engraving, tax advisory and tax
preparation (but not including preparation of annual tax returns) fees and
expenses, underwriting discounts, up-front master servicing fees, and up-front
costs of credit enhancements;
(n) "FDIC" means the Federal Deposit Insurance Corporation or any
successor or assign or any resulting, surviving or transferee entity;
(o) "FHA" means the Federal Housing Administration of the Department
of Housing and Urban Develop-
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ment of the United States of America or any successor or assign or any
resulting, surviving or transferee entity;
(p) "FHA Loan" means a mortgage loan insured by the FHA;
(q) "FHLMC" means the Federal Home Loan Mortgage Corporation, a
corporation organized and existing under the laws of the United States of
America, or any successor or assign or any resulting, surviving or transferee
entity;
(r) "FHLMC Certificate" means a FHLMC mortgage participation
certificate;
(s) "FNMA" means the Federal National Mortgage Association, a
corporation organized and existing under the laws of the United States of
America, or any successor or assign or any resulting, surviving or transferee
entity;
(t) "FNMA Certificate" means a FNMA mortgage pass-through
certificate;
(u) "GAAP" means generally accepted accounting principles;
(v) "GNMA" means the Government National Mortgage Association, a
corporation organized and existing under the laws of the United States of
America, or any successor or assign or any resulting, surviving or transferee
entity;
(w) "GNMA Certificate" means a fully-modified pass-through mortgage-
backed certificate guaranteed by GNMA;
(x) "Governing Instruments" means, the Company's Certificate of
Incorporation, as amended, By-Laws, as amended, and any resolutions duly adopted
by the Board of Directors;
(y) "Internal Revenue Code" or "Code", means the Internal Revenue
Code of 1986, as amended;
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(z) "Mortgage Assets" means, collectively, Mortgage Instruments,
Residual Interests and Mortgage-Backed Obligations;
(aa) "Mortgage-Backed Obligations" means, collectively,
collateralized mortgage obligations, mortgage-backed bonds and mortgage
collateralized debt, mortgage pass-through obligations or other instruments
collateralized by, or representing interests in, mortgage debt or Mortgage
instruments;
(bb) "Mortgage Certificates" means, collectively (i) GNMA
Certificates, (ii) FHLMC Certificates, (iii) FNMA Certificates and (iv) any
other mortgage certificates; including private label pass-through certificates,
and other mortgage instruments as reasonably determined by the Company;
(cc) "Mortgage Finance Companies" means entities which own and
finance Mortgage Instruments;
(dd) "Mortgage Instruments" means, collectively, Mortgage
Certificates and Mortgage Loans;
(ee) "Mortgage Interests" means an equity interest in Mortgage
Finance Companies;
(ff) "Mortgage Loans" means, collectively, Conforming Mortgage
Loans and Non-conforming Mortgage Loans;
(gg) "Net Income" means the Company's taxable income including
capital gains and capital losses arising from the Company's operations before
(i) the manager's incentive compensation, (ii) net operating loss deductions
arising from losses in prior periods, (iii) special-deductions permitted by the
Internal Revenue Code in calculating taxable income for a REIT, and (iv) the
deduction arising from the exercise of stock options permitted under Code
Section 83 and the deduction for dividend equivalent rights. In addition,
taxable income, for this computation, will also be adjusted for all mortgage
derivative interests in which the Company's basis is different from the current
reportable tax basis in such mortgage derivative interests. In such situations,
GAAP income will be substituted for taxable in-
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come. In addition, taxable income will also be reduced by 25% of the expense
otherwise deductible for tax purposes relating to the exercise of stock options
and the issuance of Common Stock relating to dividend equivalent rights;
(hh) "Non-conforming Mortgage Loan" means a mortgage loan that
meets the requirements of the guaranty programs of either FNMA, FHLMC or GNMA;
except for the requirements with respect to the maximum original outstanding
principal amounts of such mortgage loans and such other particular requirements
of such programs presented to and approved by the Board of Directors;
(ii) "Other Mortgage Assets" means (i) interest-only
certificates, (ii) principal-only certificates, (iii) subordinated interests in
mortgage pass-through transactions and (iv) other mortgage-derivative assets;
(jj) "Person" means a natural person, corporation, partnership,
association, trust (including any beneficiary thereof), company, joint venture,
joint stock company, unincorporated organization or other entity;
(kk) "REIT" means a real estate investment trust under the
Internal Revenue Code;
(ll) "Residual Interests" mean interests in Mortgage-Backed
Obligations that entitle the holder to receive excess cash flow from the
collateral pledged to secure such obligations;
(mm) "Repurchase Agreement" means a financing transaction
pursuant to which the Company would sell Mortgage Assets for cash and
simultaneously agree to repurchase them at a specified date or the same amount
of cash plus an interest component;
(nn) "Series of Mortgage-Backed Obligations" means a separate
series of Mortgage-Backed Obligations issued or caused to be issued by the
Company or an Affiliated Issuer or other person pursuant to an indenture or
other agreement;
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(oo) "Servicing Agreement" means a servicing agreement between
the Company and any servicer of the Company's Mortgage Loans;
(pp) "Stockholders" means the registered owners of the shares of
common stock of the Company;
(qq) "Tax Retained Earnings (Losses)" for purposes of computing
the incentive compensation pursuant to section 9(b) of this Agreement, shall be
commuted as follows: (a) at the beginning of the first quarter of the current
fiscal year, the sum of the tax retained earnings at the beginning of the fourth
quarter of the prior fiscal year plus net income for the fourth quarter of the
prior fiscal year computed in accordance with the management agreement in effect
during such prior fiscal year minus dividends declared during the fourth quarter
of the prior fiscal year; or (b) at the beginning of each subsequent quarter of
the current fiscal year, the sum of the Tax Retained Earnings (Losses) at the
beginning of the prior fiscal quarter plus Net Income for the prior fiscal
quarter minus dividends declared during the prior fiscal quarter. [An estimate
of Tax Retained Earnings for 1993 is shown in Exhibit A];
(rr) "Ten Year U.S. Treasury Rate" for any period means the
arithmetic average of the weekly average yield to maturity for actively traded
current coupon U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of ten years) published by the Federal Reserve Board during
such period, or, if such rate is not published by the Federal Reserve Board,
then any Federal Reserve Bank or agency or department of the federal government
selected by the Company; or, if the Company determines in good faith that for
any reason the Company cannot determine the Ten Year U.S. Treasury Rate for any
period as provided above, then the Ten Year U.S. Treasury Rate for such period
shall be the arithmetic average of the per annum average yields to maturity,
based upon the closing asked price on each business day during such period, as
chosen and quoted in New York City for each business day (or less frequently if
daily quotations shall not be generally available) by at least three recognized
dealers in U.S. government securities selected by the Company, for each actively
traded marketable U.S. Treasury fixed interest rate security (other than securi-
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ties which can, at the option of the holder, be surrendered at face value in
payment of any federal estate tax) with a final maturity date not less than
eight nor more than twelve years from the date of such closing asked price;
(ss) "Total Operating Expenses" means the expenses indicated in
Section 9(c)(iii);
(tt) "Independent Directors" shall have the meaning ascribed to
that term in the By-Laws of the Company, as the same may be amended or
supplemented from time to time;
(uu) "VA" means the Veterans Administration of the United States
of America, or any successor or assign or any resulting, surviving or transferee
entity; and
(vv) "VA Loan" means a mortgage loan partially guaranteed by the
VA.
SECTION 2. GENERAL DUTIES OF THE MANAGER.
The Manager undertakes to use its best efforts (i) present to the
Company asset acquisition opportunities consistent with the policies and
objectives of the Company and (ii) furnish the Board of Directors with
information concerning the making, acquisition, holding and disposing of assets.
Subject to the supervision and control of the Board of Directors, the Manager
shall provide services to the Company and, to the extent directed by the Board
of Directors, shall provide similar services to any Affiliated Issuer, if any,
or subsidiary of the Company as follows:
(a) serve as the Company's consultant with respect to the formulation
of asset acquisition criteria and policy guidelines for recommendation to the
Board of Directors;
(b) counsel the Company in connection with policy decisions to be
made by the Board of Directors;
(c) issue commitments on behalf of the Company to acquire Mortgage
Assets;
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(d) represent the company in connection with the acquisition and
accumulation of Mortgage Assets;
(e) furnish reports and statistical and economic research to the
Company regarding the Company's portfolio activities and the services performed
for the Company by the Manager as reasonably requested by the Board of
Directors;
(f) monitor and provide to the Board of Directors, on an on-going
basis, rate information and other data regarding Repurchase Agreements and
alternative lending sources;
(g) negotiate and enter into agreements on behalf of the Company with
banking institutions and other leaders to provide for the borrowing of funds by
the Company;
(h) monitor and provide to the Board of Directors, on an on-going
basis, price information and other data obtained from certain nationally
recognized dealers that maintain markets in Mortgage Assets and Other Mortgage
Assets identified by the Board of Directors from time to time, and provide data
and advise to the Board of Directors in connection with the identification of
such dealers;
(i) provide a full time chief operating officer/chief financial
officer of the Company, a full time chief accounting officer of the Company,
provide the personnel to perform or supervise the duties of the computer
programmer and analyst (including necessary computer support staff), senior
investment officer, controller, shareholder relations, press officer, cash
manager, tax manager (including necessary support staff) (any of which functions
may be performed by the same person or persons) and other personnel necessary to
manage the Company on a day-to-day basis and provide to the Company, commencing
as of the date hereof and thereafter on a semi-annual basis, a list of all the
full time and part time employees of the Manager and a description of the
functions of such employees;
(j) administer the day-to-day operations of the Company and perform
or supervise the performance of such other administrative functions necessary in
the
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management of the Company as may be agreed upon by the Manager and the Board of
Directors, including the collection of revenues and the payment of the Company's
expenses, debts and obligations and maintenance of appropriate computer services
to perform such administrative functions;
(k) communicate on behalf of the Company with the holders of the
equity and debt securities of the company as required to satisfy the continuous
reporting and other requirements of any governmental bodies or agencies,
securities exchanges and bond indentures and to maintain effective relations
with such holders;
(l) prepare, draft and file all the Company's filings with the
Securities and Exchange Commission, PROVIDED THAT filing fees, legal fees,
accounting fees and any other third-party fees shall be the responsibility of
the Company;
(m) to the extent not otherwise subject to an agreement executed by
the Company, designate a servicer for those Mortgage Loans sold to the Company
by originators that have elected not to service such loans and arrange for the
monitoring and administering of such servicers;
(n) monitor and administer the servicing of the Company's Mortgage
Loans, other than Mortgage Loans pooled to back Mortgage Certificates or pledged
to secure Mortgage-Backed obligations, including serving as the Company's
consultant with respect to the servicing of loans; collecting information and
submitting reports pertaining to the Mortgage Loans and to moneys remitted to
the Manager or the Company by servicers; periodically reviewing and evaluating
the performance of each servicer to determine its compliance with the terms and
conditions of the servicing agreement and, if deemed appropriate, recommending
to the Company the termination of such servicing agreement; acting as a liaison
between servicers and the Company and working with servicers to the extent
necessary to improve their servicing performance; reviewing recommendations as
to fire losses, easement problems and condemnation, delinquency and foreclosure
procedures with regard to the Mortgage Loans; reviewing servicers, delinquency,
foreclosing and other reports on Mortgage Loans; supervising claims filed under
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any mortgage insurance policies; and enforcing the obligation of any servicer to
repurchase Mortgage Loans from the Company;
(o) in accordance with criteria set up by the Board of Directors,
invest or reinvest the Company's cash consistent with the Company's status as a
REIT;
(p) provide to the Company itself or through another appropriate
party (but the Manager shall not charge for the services of such an appropriate
party unless authorized by the Board of Directors) all services in connection
with the issuance of each Series of Mortgage-Backed Obligations issued by the
Company or any Affiliated Issuer, including:
(i) representing the Company with respect to the structuring of
each such Series of Mortgage-Backed Obligations;
(ii) negotiating the rating requirements with rating agencies
with respect to the rating of each such Series of Mortgage-Backed Obligations;
(iii) representing the Company in connection with the acquisition
and accumulation of any Mortgage Instruments and the pooling and exchange of
Mortgage Loans into Mortgage Certificates in connection with each Series of
Mortgage-Backed obligations issued by the Company or any Affiliated Issuer;
(iv) issuing Commitments on behalf of the Company to acquire
Mortgage Instruments to be used to secure or constitute the mortgage pool for
each such Series of Mortgage-Backed Obligations;
(v) with respect to the issuance of each such series of
Mortgage-Backed Obligations for which the underlying collateral consists of
Mortgage Instruments owned by the Company or an Affiliated Issuer, accumulating
and reviewing all Mortgage Instruments which may secure or constitute the
mortgage pool for each such Series of Mortgage-Backed Obligations;
(vi) with respect to the issuance of each such Series of
Mortgage-Backed Obligations for which the underlying collateral does not consist
of Mortgage In-
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struments owned by the Company or an Affiliated Issuer, reviewing interest
rates, maturity dates and other attributes of the Mortgage Instruments;
(vii) negotiating all agreements and credit enhancements with
respect to each such Series of Mortgage-Backed Obligations;
(viii) organizing and administering all activities in connection
with the closing of each such Series of Mortgage-Backed Obligations including
all negotiations and agreements with underwriters, trustees, servicers, master
servicers and other parties; and
(ix) performing such other services as may be required from time
to time for completing the issuance of each such Series of Mortgage-Backed
Obligations.
(q) provide to the Company itself or through another appropriate
party (but the Manager shall not charge for the services of such an appropriate
party unless authorized by the Board of Directors) all services in connection
with the administration of each Series of Mortgage-Backed Obligations issued by
the Company or any Affiliated Issuer, including:
(i) communicating on behalf of the Company with the holders of
each such Series of Mortgage-Backed Obligations as required to satisfy the
reporting and tax informational requirements of any governmental bodies or
agencies with respect to holders of each such Series of Mortgage-Backed
obligations and as required to satisfy any governmental bodies and the
provisions of any indenture, pooling and servicing agreement or other agreement
with respect to each such Series of Mortgage-Backed Obligations;
(ii) determining the amount of, and making, all payments with
respect to each such Series of Mortgage-Backed Obligations and directing the
reinvestment of Principal and interest from the Mortgage Instruments in
accordance with the terms of any indenture, pooling and servicing agreement or
other agreement relating to each such Series of Mortgage-Backed Obligations;
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(iii) furnishing all reports and statistical information
required with respect to the administration of each such Series of Mortgage-
Backed obligations;
(iv) working with the Company and with accountants, counsel,
trustees, servicers, master servicers and other parties with respect to the
administration of each such Series of Mortgage-Backed Obligations;
(v) assisting trustees and paying agents in distributing all
excess or residual payments with respect to each such Series of Mortgage-Backed
Obligations as directed by the Company or any indenture, pooling and servicing
agreement or other agreement with respect to each such Series of Mortgage-Backed
Obligations;
(vi) monitoring and providing, on an ongoing basis, information
with respect to each such Series of Mortgage Backed Obligations as is required
by the Company;
(vii) advising the Company with respect to the administration of
each such Series of Mortgage-Backed Obligations; and
(viii) performing such other services as may be required from
time to time in connection with the administration of each such Series of
Mortgage-Backed Obligations as the Company shall deem appropriate under the
particular circumstances.
(r) provide to the Company itself or through another appropriate
party (but the Manager shall not charge for the services of such an appropriate
party unless authorized by the Board of Directors) services in connection with
reviewing and monitoring the administration of each series of Mortgage-Backed
Obligations managed by a party other than the Manager or any of its Affiliates,
including:
(i) reviewing monthly financial statements and/or other
financial data prepared by the third-party bond administrator and distributed to
the Company;
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(ii) reviewing bond payment information and verifying the excess
cash flow payment received by the Company;
(iii) monitoring on-going expenses related to each series of
Mortgage-Backed Obligations, where expense information has been provided to the
Company;
(iv) reviewing federal income tax reports prepared by the third-
party bond administrator and distributed to the Company, including but not
limited to, reports for real estate mortgage investment conduits; and
(v) providing and preparing for Residual Interests in Mortgage-
Backed Obligations which are accounted for under a level-yield method: (A)
necessary services for computing monthly income in accordance with GAAP; and (B)
the necessary calculations to compute the carrying amount adjustment in
accordance with the Company's accounting principles.
(s) monitor the Company's portfolio with regard to interest rate risk
and recommend to the Board of Directors, and negotiate and enter into on behalf
of the Company, transactions to reduce interest rate risk including, but not
limited to, interest rate swap agreements, forward rate agreements, interest
rate cap agreements, interest rate floor agreements and financial futures and
option contracts in accordance with the criteria established by the Board of
Directors;
(t) perform such other services as may be required from time to time
for management and other activities relating to the assets of the Company as the
Board of Directors shall deem appropriate under the particular circumstances;
(u) provide tax planning and advisory services and prepare and file
on behalf of the Company all filings required by federal, state and local
governments, including but not limited to, federal and state REIT income tax
returns (including the preparation of the related REIT qualification
calculations), personal property tax returns, sales tax returns, payroll tax
returns, franchise tax returns, annual reports and federal and state information
returns; and
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(v) provide the executive, administrative and other personnel, office
space and services required in rendering services to the Company listed in this
Section 2.
The Manager agrees to use its best efforts at all times in performing
services for the Company hereunder.
SECTION 3. ADDITIONAL ACTIVITIES OF MANAGER. Nothing herein shall
prevent or restrict the Manager or any of its officers, employees or Affiliates
from engaging in any business or rendering services of any kind to any other
Person, including investment in, or advisory service to others investing in, any
type of real estate assets, including assets which meet the principal portfolio
objectives of the Company, except that, without the consent of the Board of
Directors, which consent shall not be unreasonably withheld, the Manager shall
not provide general management services to any REIT or similar entity.
Notwithstanding the foregoing, the Manager may provide general management
services, including all of the services contemplated hereby or listed in this
Section 3: (1) to any subsidiary or Affiliate of the Company, and (2) to Asset
Investors Corporation ("AIC"), and its subsidiaries and Affiliates. Directors,
officers, employees and agents of the Manager or Affiliates of the Manager may
serve as directors, officers, employees, agents, nominees or signatories for the
Company or any subsidiary of the Company, to the extent permitted by their
Governing Instruments, as from time to time amended, or by any resolutions duly
adopted by the Board of Directors pursuant to its Governing Instruments. When
executing documents or otherwise acting in such capacities for the Company, such
persons shall use their respective titles in the Company.
SECTION 4. COMMITMENTS. In order to meet the portfolio requirements
of the Company, as determined by the Board of Directors from time to time, the
Manager agrees to issue on behalf of the Company Commitments on such terms as
are established by the Board of Directors, including a majority of the
Unaffiliated Directors, for the acquisition of Mortgage Instruments originated
by, or acquired from, any Person.
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SECTION 5. BANK ACCOUNTS. At the direction of the Board of
Directors, the Manager may establish and maintain one or more bank accounts in
the name of the Company or any subsidiary of the Company, and may collect and
deposit into any such account or accounts, and disburse funds from any such
account or accounts, under such terms and conditions as the Board of Directors
may approve; and the Manager shall from time to time render appropriate
accountings of such collections and payments to the Board of Directors and, upon
request, to the auditors of the Company or any subsidiary of the Company. Such
accounts shall be insured by the FDIC.
SECTION 6. RECORDS; CONFIDENTIALITY. The Manager shall maintain
appropriate books of account and records relating to services performed
hereunder, and such books of account and records shall be accessible for
inspection by representatives of the Company or any subsidiary of the Company at
any time during normal business hours. The Manager shall keep confidential any
and all information obtained in connection with the services rendered hereunder
and shall not disclose any such information to nonaffiliated third parties
except with the prior written consent of the Board of Directors.
SECTION 7. OBLIGATIONS OF MANAGER.
(a) The Manager shall require each seller or transferor of Mortgage
Assets to the Company to make such representations and warranties regarding such
Mortgage Assets as may, in the judgment of the Manager, be necessary and
appropriate. In addition, the Manager shall take such other action as it deems
necessary or appropriate with regard to the protection of the Company's assets.
Notwithstanding any other provision herein, the Manager shall act in accordance
with the Portfolio Management Guidelines established by the Board of Directors
dated as of the date hereof (the "Guidelines"), as such Guidelines may be
amended or supplemented from time to time with the consent of the Manager. The
Manager shall act, in the absence of specific provisions in the Guidelines, in
accordance with industry standards.
(b) The Manager shall refrain from any action which would adversely
affect the status of the Company as a REIT or, if applicable, any subsidiary of
the Company as a REIT or as a qualified REIT subsidiary or which
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would violate any law, rule or regulation of any governmental body or agency
having jurisdiction over the Company or any such subsidiary or which would
otherwise not be Permitted by the Company's or such subsidiary's Governing
Instruments. If the Manager is ordered to take any such action by the Board of
Directors, the Manager shall promptly notify the Board of Directors of the
Manager's judgment that such action would adversely affect such status or
violate any such law, rule or regulation or the Governing Instruments and
refrain from taking such action pending further clarification from the Board of
Directors. If the Manager receives further clarification or instructions
expressly ordering that the action be taken, the Manager shall act as instructed
by the Board of Directors and shall have no liability for such action.
Notwithstanding the foregoing, the Manager, its directors, officers,
stockholders and employees shall not be liable to the Company, any Affiliated
Issuer, any subsidiary of the Company, the Unaffiliated Directors or the
Company's or its subsidiary's stockholders for any act or omission by the
Manager, its directors, officers, stockholders or employees except as provided
in Section 13 of this Agreement.
SECTION 8. INVESTMENT COMPANY STATUS.
Notwithstanding any other provision of this Agreement to the contrary,
the Company and the Manager each shall use its best efforts to refrain from
taking any action which, in its judgment made in good faith and with the
exercise of reasonable care, would cause the Company or any subsidiary of the
Company to be required to register as an investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). It shall be the
duty of the Manager to perform such calculations necessary to insure that the
Company or any subsidiary of the Company shall not be required to register under
the Investment Company Act. If an action is ordered by the Board of Directors,
which in the Manager's judgment might cause such registration to be required,
the Manager shall promptly notify the Board of Directors and shall refrain from
taking such action pending further clarification or instructions from the Board
of Directors. If the Manager receives further clarification or instructions
expressly ordering that the action be taken, the Manager shall act as instructed
by
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the Board of Directors and shall have no liability for such action.
SECTION 9. COMPENSATION.
(a) BASE FEE. Subject to Sections 9(c) and 9(e) hereof, the Company
shall pay to the Manager, for services rendered under this Agreement, a base
management fee in an amount equal to 3/8 of 1% per annum of the Average Invested
Assets of the Company during each fiscal year. An amount equal to 3/32 of 1% of
the Average Invested Assets for each fiscal quarter (pro rata based on the
number of days elapsed during any partial fiscal quarter), shall be paid to the
Manager, as provided by, and subject to adjustment under, Section 9(e) of this
Agreement.
(b) INCENTIVE COMPENSATION. The Company shall pay the Manager as
incentive compensation a yearly fee, in an amount equal to 25% of the dollar
amount, if any, by which the annual Net Income of the Company for each fiscal
year exceeds an amount equal to the Average Net Worth multiplied by the Ten Year
U.S. Treasury Rate plus one percentage point. If the annual Net Income of the
Company is less than the amount equal to the Average Net Worth multiplied by the
Ten Year U.S. Treasury Rate plus one percentage point, the Manager shall refund
to the Company the net year-to-date incentive compensation previously paid to
the Manager during the current fiscal year, if any.
The quarterly payment of such amount by the Company to the Manager, or
refund to the Company from the Manager in the event the incentive compensation
for any year-to-date period is less than the incentive compensation computed and
paid to the Manager as of the previous year-to-date period, shall be computed
each fiscal quarter on a cumulative year-to-date basis in an amount equal to (A)
25% of the dollar amount, if any, by which the year-to-date Net income through
such fiscal quarter, exceeds an amount equal to the Average Net Worth for such
year-to-date period multiplied by the year-to-date Ten Year U.S. Treasury Rate
plus one Percentage point multiplied by the number of quarters during such year-
to-date period divided by four; and (B) minus the year-to-date incentive
compensation computed for the prior fiscal quarter. If the year-to-date
incentive compensation
18
computed through such fiscal quarter of the Company is less than the net year-
to-date incentive compensation computed for the previous year-to-date fiscal
quarter, the Manager shall refund to the Company the lesser of (i) the
difference between the net year-to-date incentive compensation computed for the
previous year-to-date fiscal quarter and the net year-to-date incentive
compensation computed for the current fiscal quarter or (ii) the net year-to-
date incentive compensation computed for the previous year-to-date fiscal
quarter, if any. Such quarterly payment shall be paid to the Manager, or
refunded to the Company, as provided by, and subject to adjustment under,
Section 9(e) of this Agreement. A sample calculation of the incentive
compensation is shown in Exhibit A.
(c) LIMITATION ON BASE FEE AND INCENTIVE COMPENSATION.
(i) REDUCTION OF BASE FEE AND INCENTIVE COMPENSATION. During
any fiscal quarter, the base management fee described in Section 9(a) above and
incentive compensation described in Section 9(b) above shall be reduced by the
amount, up to the total amount of such base management fee and incentive
compensation, by which the year-to-date Total Operating Expenses (as defined
below) of the Company and its subsidiaries exceed the greater of 2% of its
Average Invested Assets multiplied by the number of quarters during such year-
to-date period divided by four or 25% of its year-to-date Net Income through
such fiscal quarter, provided, however, that a majority of the Unaffiliated
Directors may waive part or all of any such reduction to the extent that they
determine, based upon unusual or nonrecurring factors which they deem
sufficient, that a higher level of expenses is justified for such year.
(ii) RECOVERY OF BASE FEE AND INCENTIVE COMPENSATION. If at the
close of any fiscal year the limitation on the base management fee and incentive
compensation pursuant to Section 9(c)(i) above is imposed, the Manager shall be
entitled to recover without interest any reduction of fees during such fiscal
year pursuant to Section 9(c)(i) when, if, and to the extent that, the Total
Operating Expenses of the Company and its subsidiaries in any future calendar
year, including the recovery of the base management fee and incentive compen-
19
sation or any portion thereof, are less than the greater of 2% of the Company's
Average Invested Assets or 25% of its Net income for such year.
(iii) TOTAL OPERATING EXPENSES. For the purposes of Section
9(c) only, "Total Operating expenses" for any period means the aggregate year-
to-date expenses for such period of every character payable by the Company which
constitute ordinary operating expenses of the Company, exclusive of:
(A) expenses relating to raising capital and all interest
and discounts;
(B) taxes and license fees;
(C) expenses connected directly with the issuance, sale and
distribution, and of listing on any stock exchange, of securities of the Company
including, but not limited to, underwriting and brokerage discounts and
commissions, private placement fees and expenses, legal and accounting costs,
printing, engraving and mailing costs, and listing and registration fees;
(D) expenses connected directly with the acquisition,
disposition, operation, maintenance, management (including the CMO fee) or
ownership of the Company's assets, including but not limited to costs of
foreclosure, maintenance, repair and improvement of property, maintenance and
protection of the lien of mortgages, property management fees, loan origination
fees, servicing and master servicing fees, legal fees, premiums for insurance on
property owned by or mortgaged to the Company, taxes, brokerage and acquisition
fees and commissions, appraisal fees, title insurance and abstract expenses,
provisions for depreciation, depletion and amortization, disposition fees and
subordinated real estate commissions, and losses on the disposition of assets
and provisions for such losses;
(E) fees and expenses payable to public accountants,
consultants, or persons employed for the Company directly by the Board of
Directors;
(F) legal, accounting and other expenses incurred in
connection with (a) formal or informal administrative actions or legal
proceedings which
20
involve a challenge of the status of the Company as a REIT, (b) advice regarding
obtaining or maintaining such status, (c) determination by the Company of its
taxable income as computed in accordance with the REIT provisions of the
Internal Revenue Code or (d) a claim that the activities of the Company or of
any member of the Board of Directors, officer or stockholder of the Company were
improper;
(G) expenses of organizing, reorganizing or terminating the
Company;
(H) non cash expenditures (including depreciation,
amortization and bad debt reserves);
(I) fees and expenses of transfer agents, registrars,
warrant agents, right agents, dividend payment and dividend reinvestment agents,
escrow holders and indenture trustees;
(J) all expenses connected with communications to holders
of securities of the Company and other bookkeeping and clerical work necessary
in maintaining relations with holders of securities, including the costs of
printing and mailing certificates for securities, proxy solicitation materials
and reports to such holders and the cost of holding meetings of holders of
securities of the Company; and
(K) legal, accounting, printing and other costs, including
clerical costs, of reports required to be filed with state or federal
governmental agencies.
(d) CMO FEE. Unless otherwise agreed by the parties hereto, in
addition to any other fee payable to the Manager under this Agreement, the
Manager shall be paid:
(i) For each Series of Mortgage-Backed Obligations issued by the
Company or any subsidiary of the Company and with respect to which the Manager
or any Affiliate of the Manager serves as manager, in the case of Mortgage-
Backed Obligation sold or intended to be sold primarily to institutional
investors, the lesser of (A) $35,000 annually and (B) an annual amount equal to
$35,000 annually multiplied by the percentage ownership
21
of the Company or such subsidiary of the Company in such Mortgage-Backed
Obligation, or in the case of Mortgage-Backed Obligations sold or intended to be
sold primarily to retail investors the lesser of (C) $10,000 annually and (D) an
annual amount equal to $10,000 multiplied by the percentage ownership of the
Company or such subsidiary of the Company in such Mortgage-Backed Obligation;
(ii) For each Series of Mortgage-Backed Obligations issued or
owned by the Company or any subsidiary of the Company and with respect to which
the Manager or any Affiliate of the Manager does not serve as manager, in the
case of Mortgage-Backed Obligations sold or intended to be sold primarily to
institutional investors, the lesser of (A) $10,000 annually and (B) an annual
amount equal to $10,000 multiplied by the percentage ownership of the Company or
such subsidiary of the Company in such Mortgage-Backed Obligation, or in the
case of Mortgage-Backed Obligations sold or intended to be sold primarily to
retail investors, the lesser of (C) $5,000 annually and (D) an annual amount
equal to $5,000 multiplied by the percentage ownership of the Company or such
subsidiary of the Company in such Mortgage-Backed Obligation; or
(ii) For each multi-participant Series of Mortgage-Backed
Obligations, which is not issued by the Company or an Affiliated Issuer, in
which the Company or any subsidiary of the Company participates, $5,000
annually.
With respect to any series of Mortgage-Backed Obligations issued or
acquired during a fiscal quarter, the applicable portion of such fees shall be
calculated pro rata based on the number of days such Mortgage-Backed Obligations
were outstanding during such quarter; provided, however, that series of
Mortgage-Backed Obligations issued or acquired after the 20th day of a month
shall not be considered outstanding during such month.
Where the Manager serves as manager for a Series of Mortgage-Backed
Obligations issued by the Company or any subsidiary of the Company, such fees
shall be compensation to the Manager for bond administration, reinvestment
direction, computer operations, special redemption calculations, preparation in
sending bond-holder notices and like functions. Where the Manager serves
22
as manager for a Series of Mortgage-Backed Obligations owned by but not issued
by the Company or any subsidiary of the Company, compensation to the Manager
shall be as agreed upon between the issuer of such Mortgage-Backed Obligations
and the Manager. Where the Manager does not serve as manager for a Series of
Mortgage-Backed Obligations issued or owned by the Company or any subsidiary of
the Company, such fees shall be compensation for related accounting functions
and overseeing the third-party management and administration. Notwithstanding
any other Provision of this Agreement, the Manager shall be entitled to
reimbursement for its actual costs in providing servicing functions for any pool
of Mortgage Loans.
(e) ADJUSTMENT AND PAYMENT. The Manager shall compute the estimated
compensation payable or refundable under Sections 9(a), 9(b), 9(c) and 9(d)
hereof as soon as practicable after the end of each fiscal quarter, but no later
than 50 days after the end of each such quarter. A copy of such computations
shall be thereafter promptly submitted to the Company and each member of the
Board of Directors. Such compensation shall be paid to the Manager, or refunded
to the Company, on the first business day of the third month after such fiscal
quarter as payment on account, subject to adjustment under this Section 9(e) of
this Agreement. The aggregate amount of the Manager's compensation under
Sections 9(a), 9(b), 9(c) and 9(d) for each fiscal year shall be adjusted
within: (x) 120 days after the end of such fiscal year; or (y) 120 days after
the filing of the Company's federal income tax return for such fiscal year,
whichever is later. Such adjustment shall be made to reflect additional
information provided by the Company's tax return for such fiscal year. Any
excess owed to, or refund owed by, the Manager shall be paid to the Manager or
remitted by the Manager to the Company within ten days of presentment of the
adjustment.
SECTION 10. COMPENSATION FOR ADDITIONAL SERVICES. If the Company
requests the Manager (or any Affiliate or any officer or employee thereof) to
render services for the Company other than those required to be rendered by the
Manager hereunder, such additional services, if performed, shall be compensated
separately on terms to be agreed upon between such party and the Board of
Directors from time to time. To the extent that the Manager or any Affiliate of
the Manager performs any brokerage, leasing, loan servicing, loan
administration,
23
property management or other similar services for the Company other than as
required hereunder, the rate of compensation for such services shall be either
(a) the rate at which the Manager or such Affiliate of the Manager is then
performing similar services for unaffiliated parties in the same geographic area
or (b) the rate at which qualified unaffiliated persons are then performing such
services for similar investors in the same geographic area.
SECTION 11. EXPENSES OF THE MANAGER. Without regard to the
compensation received hereunder by the Manager, the Manager shall bear the
following expenses (unless agreed otherwise by the Board of Directors):
(a) Employment expenses of the personnel employed by the Manager,
including, but not limited to, salaries, wages, payroll taxes, and the cost of
employee benefit plans for such employees;
(b) Rent, telephone, utilities, office furniture, equipment,
machinery (including computers), subscriptions and such other overhead expenses
incurred in connection with the conduct of the Manager's business;
(c) Travel and other expenses of directors, officers and employees of
the Manager, except expenses of such persons incurred in connection with
attending meetings, conferences or conventions that relate solely to the
business affairs of the Company or any subsidiary of the Company;
(d) Legal, accounting and auditing fees, and tax advisory and tax
preparation fees, relating to the corporate affairs of the Manager;
(e) If the Manager or an Affiliate acts as bond administrator for a
Series of Mortgage-Backed Obligations, all expenses relating to the performance
of the services set forth in Sections 2(p) and 2(q) of this Agreement for such
Series of Mortgage-Backed Obligations;
(f) Expenses incurred (including personnel) in preparation of the
Company's monthly financial statements; and
24
(g) Miscellaneous administrative expenses incurred in supervising and
monitoring the Company's assets or any subsidiary's assets or relating to
performance by the Manager of its functions hereunder.
If any of the expenses set out above are incurred by the Manager in
part for the purposes of the Company and in part for purposes unrelated to the
Company, the Manager shall submit an accounting to the Company's Audit Committee
of the Board of Directors on a quarterly basis to show the allocation of such
expenses.
SECTION 12. EXPENSES OF THE COMPANY. The Company or any subsidiary
of the Company shall pay all of its expenses, except those that are the
responsibility of the Manager pursuant to Section 11 of this Agreement or other
provisions of this Agreement, and without limiting the generality of the
foregoing, the following expenses of the Company or any subsidiary of the
Company shall be paid by the Company or such subsidiary and shall not be paid by
the Manager:
(a) Expenses related to raising capital, including the cost of
borrowed money, interest payments, discounts, loan and commitment fees, points
and any other related charges;
(b) All license fees and all taxes applicable to the Company or any
subsidiary of the Company, including interest and penalties thereon;
(c) Legal, audit, accounting, underwriting, brokerage, listing,
rating agency, registration and other fees, printing, engraving and other
expenses and taxes incurred in connection with the issuance, sale, distribution,
transfer, registration and stock exchange listing of the securities of the
Company or of any subsidiary of the Company;
(d) Employment expenses, fees and out-of-pocket costs of the Company
and fees and expenses paid to employees, agents, advisers and independent
contractors, consultants, managers, and other agents (other than the Manager)
employed directly by the Company or any subsidiary of the Company or by the
Manager at the request of the Company or such subsidiary for the account of the
Company or the subsidiary;
25
(e) Expenses connected with the acquisition, disposition, operation
(except for those duties performed by the Manager) and ownership of the assets
of the Company or any subsidiary of the Company, including, without limitation,
commitment, appraisal, guaranty and hedging fees, brokerage and acquisition fees
and commissions, ad valorem taxes, costs of foreclosure, maintenance, repair and
improvement of property, maintenance and protection of the lien of mortgages,
property management fees, loan origination fees, servicing and master servicing
fees, legal fees, premiums for insurance on property owned by the Company or any
subsidiary of the Company and insurance and abstract expenses; PROVIDED, that
with regard to brokerage fees, unless approved by a majority of the Unaffiliated
Directors, neither the Manager nor any of its Affiliates shall charge a
brokerage commission or similar fee to the Company or any subsidiary of the
Company in connection with the acquisition, disposition or ownership of the
assets of the Company or the subsidiary;
(f) Expenses of organizing, reorganizing, dissolving or winding-up
the Company or any subsidiary of the Company;
(g) All insurance costs not included in paragraph (e) hereof and
incurred by the Company or any subsidiary of the Company, including without
limitation, the cost of officer and director liability insurance;
(h) Expenses connected with payments of dividends or interest or
distributions in cash or any other Form made or caused to be made by the Board
of Directors to holders of the securities of the Company or any subsidiary of
the Company;
(i) Direct Issuance Costs;
(j) All expenses connected with communications to holders of equity
securities or debt securities of the Company or any subsidiary of the Company
and with governmental agencies and the other bookkeeping and clerical work
necessary in maintaining relations with holders of such securities and in
complying with the continuous reporting and other requirements of governmental
bodies or agencies, including, without limitation, the cost of printing and
mailing certificates for such securities and
26
proxy solicitation materials and reports to holders of the Company's or any
subsidiary's securities and reports to third-parties required under any
indenture to which the Company or any subsidiary of the Company is a party,
except such expenses that are the responsibility of the manager as set forth in
Section 11 hereof, including but not limited to the expenses listed in Sections
11(a) and 11(b) incurred by the Manager in connection with this Section 12(j);
(k) Fees and charges of any transfer agent or registrar;
(l) Fees and expenses paid to directors of the Company or any
subsidiary of the Company, except, in each case, directors who are Affiliates of
the Manager;
(m) Legal, accounting and auditing fees, and tax advisory and tax
preparation fees, relating to the, operations of the Company or any subsidiary;
(n) Legal, accounting and auditing fees, tax advisory and tax
preparation fees, consulting fees and expenses relating to the administration of
Mortgage-Backed obligations issued or caused to be issued by the Company;
(o) Any judgment rendered against the Company or any subsidiary of
the Company, or against any officer or director of the Company or any subsidiary
of the Company in his capacity as such by any court or governmental agency;
(p) If the Manager or an Affiliate does not act as bond administrator
for a Series of Mortgage-Backed obligations issued by an Affiliated Issuer by or
on behalf of the Company, all fees charged by the bond administrator who
performs the services set forth in Sections 2(p) and 2(q) of this Agreement for
such Series of Mortgage-Backed Obligations;
(q) Fees paid to the Manager with the approval of a majority of the
Unaffiliated Directors for participation by the Company in programs operated by
the Manager for the pricing and acquisition of Mortgage Loans;
27
(r) Amounts payable by the Company to the Manager under Section 13 of
this Agreement;
(s) Third-party fees and expenses incurred by the Manager under
Section 14 of this Agreement; and
(t) Other miscellaneous expenses in connection with the operation of
the Company or any subsidiary of the Company which are not expenses of the
Manager under Section 11 of this Agreement, provided that any such single
expense in excess of $5,000 shall be submitted to the Company's Audit Committee
of the Board of Directors on a quarterly basis.
SECTION 13. LIMITS OF RESPONSIBILITY OF THE MANAGER.
(a) The Company shall indemnify the Manager and its Affiliates with
respect to all expenses, losses, damages, liabilities, demands, charges or
claims of any nature in respect of acts or omissions of the Manager made in good
faith and in accordance with the standards set forth in this Agreement.
(b) Notwithstanding subsection (a) of this Section 13, the Company
shall not be responsible for any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or attributable
to the Manager's failure to comply with the terms of this Agreement or any
action or failure or omission to act by the Manager as a result of the gross
negligence, willful misconduct or lack of good faith of the Manager or any of
its agents or as a result of its or any of their reckless disregard of its
duties and any obligations hereunder, or which arise out of the willful breach
of any representation or warranty of the Manager hereunder.
(c) The Manager shall indemnify and hold harmless the Company with
respect to all expenses, losses, damages, liabilities, demands, charges or
claims of any nature in respect of acts or omissions of the Manager not in
accordance with the standards set forth in this Agreement.
(d) The Manager shall promptly notify the Board of Directors of any
litigation or governmental
28
investigation involving the Company and shall keep the Board of Directors fully
informed of the status of any such litigation or governmental investigation.
SECTION 14. POOLING OF MORTGAGE LOANS; ISSUANCE OF MORTGAGE
CERTIFICATES. If the Manager determines it to be in the best interests of the
Company and consistent with the portfolio criteria approved by the Board of
Directors of the Manager shall, directly or indirectly and on behalf of the
Company, pool Mortgage Loans acquired by the Company and use its best efforts to
have Mortgage Certificates issued backed by such Mortgage Loans which meet all
underwriting and other requirements for such issuance. In connection therewith,
the Manager shall, directly or indirectly and on behalf of the Company, apply to
the respective issuer for a commitment to issue the related Mortgage
Certificates and, once such commitment has been approved, contract to Pool such
Mortgage Loans and cause to be issued Mortgage Certificates back by such
Mortgage Loans, which Mortgage Certificates shall be owned by and registered in
the name, or deposited into a depository institution for the account, of the
Company. After the issuance of such Mortgage Certificates, unless otherwise
specified by the Company, the servicer of the related Mortgage Loans shall have
all responsibilities and duties to the issuer of such Mortgage Certificates with
respect to such Mortgage Loans and Mortgage Certificates, and shall service such
Mortgage Loans after the issuance of the Mortgage Certificates which they back
in accordance with the requirements of the issuer of such Mortgage Certificates.
In connection therewith, the Manager shall apply conditions of the
Servicing Agreement, and, if deemed appropriate, recommend to the Company the
termination of such Servicing Agreement; acting as a liaison between servicers
and the Company and working with servicers to the extent necessary to improve
their servicing performance; review of and recommendations as to fire losses,
easement problems and condemnation, delinquency and foreclosure procedures with
regard to the Mortgage Loans; review of servicers' delinquency, foreclosing and
other reports on Mortgage Loans; supervising claims filed under any mortgage
insurance policies; and enforcing the obligation of any servicer to repurchase
Mortgage Loans from the Company.
29
SECTION 15. NO JOINT VENTURE. The Company and the Manager are not
partners or joint venturers with each other and nothing herein shall be
construed to make them such partners or joint venturers or impose any liability
as such on either of them.
SECTION 16. TERM. This Agreement shall continue in force until
December 31, 1993 unless otherwise renewed or extended.
SECTION 17. TERMINATION OF AGREEMENT.
(a) Notwithstanding any other provision of this Agreement to the
contrary, this Agreement may be terminated by either party with or without cause
upon 60 days' written notice. In addition, this Agreement may be terminated at
any time by a majority vote of (i) the Unaffiliated Directors or (ii) the
holders of the Common Stock of the Company.
(b) This Agreement may be immediately terminated by the Company by
written notice of termination from the Company to the Manager upon the
occurrence of any of the following events:
(i) if the Manager shall violate any material provision of this
Agreement which, after written notice of such violation, is not cured within 30
days;
(ii) if the Manager or any of its Affiliates shall be adjudged
bankrupt or insolvent by a court of competent jurisdiction, or any order shall
be made by a court of competent jurisdiction for the appointment of a receiver,
liquidator or trustee of the Manager or any of its Affiliates or of all or
substantially all of its property by reason of the foregoing or approving any
petition filed against the Manager or any of its Affiliates for its
reorganization and such adjudication, order or petition has not been stayed or
discharged pending appeal within 60 days of its entry;
(iii) if the Manager or any of its Affiliates shall institute
proceedings for voluntary bankruptcy or shall file a petition seeking
reorganization under the federal bankruptcy laws, or for relief under any law of
the relief of debtors, or shall consent to the appointment of a receiver, or
shall make a general assign-
30
ment for the benefit of its creditors, or shall admit in writing its inability
to pay its debts generally as they become due;
(iv) if any governmental authority, court or self-regulatory
authority shall withdraw, suspend or revoke or declare invalid any license,
charter, authorization or, registration required or necessary for the conduct by
the Manager or any of its Affiliates of any material portion of its business or
businesses and such adjudication, order or petition has not been stayed or
discharged pending appeal within 60 days of its entry; or
(v) if any event or circumstances shall occur which materially
impairs the financial condition of the Manager or any of its Affiliates or the
ability of the Manager to perform its obligations hereunder.
The Manager agrees that if any of the events specified in subsection
(b) of this Section 17 shall occur, it will give written notice thereof to the
Board of Directors within five days after the occurrence of such event.
SECTION 18. ASSIGNMENTS.
(a) Except as set forth in Section 18(b) of this Agreement, this
Agreement shall terminate automatically in the event of its assignment, in whole
or in part, by the Manager, unless such assignment is consented to in writing by
the Company with the consent of a majority of the Unaffiliated Directors. Any
such assignment shall bind the assignee hereunder in the same manner as the
Manager is bound. In addition, the assignee shall execute and deliver to the
Company a counterpart of this Agreement naming such assignee as Manager. This
Agreement shall not be assigned by the Company without the prior written consent
of the Manager, except in the case of assignment by the Company to a REIT or
other organization which is a successor (by merger, consolidation or purchase of
assets) to the Company, in which case such successor organization shall be bound
hereunder and by the terms of such assignment in the same manner as the Company
is bound hereunder.
(b) Notwithstanding any provision of this Agreement, the Manager may
subcontract and assign any or
31
all of its responsibilities at no additional cost to the Company under Sections
2(p), 2(q) and 2(r) of this Agreement to any of its affiliates, and the Company
hereby consents to any such assignment and subcontracting.
SECTION 19. ACTION UPON TERMINATION.
(a) Except as provided in Section 19(b) of this Agreement, from and
after the effective date of termination of this Agreement, pursuant to Sections
16, 17 or 18 of this Agreement, the Manager shall not be entitled to
compensation for further services hereunder, but shall be paid all compensation
accruing to the date of termination. Upon such termination, the Manager shall
forthwith:
(i) Pay over to the Company or any subsidiary of the Company all
money collected and held for the account of the Company or any subsidiary of the
Company pursuant to this Agreement;
(ii) Deliver to the Board of Directors a full accounting,
including a statement showing all payments collected by it and a statement of
all money held by it, covering the period following the date of the last ended
fiscal quarter;
(iii) Deliver to the Board of Directors all property and
documents of the Company or any subsidiary of the Company then in the custody of
the Manager; and
(iv) Present an accounting of any accrued compensation pursuant
to Section 9 above and an accounting of any expenses for which it seeks
reimbursement to the Board of Directors.
(b) Notwithstanding any provisions of this Agreement, if the Manager
is terminated pursuant to Section 17(a) of this Agreement within twelve months
after the occurrence of any of the events set forth in Section 19(c) hereunder,
the Manager shall be entitled to compensation as follows:
(i) The Manager shall be paid all compensation to the date of
termination; and
32
(ii) on the final day of each fiscal quarter after the date of
termination and ending one year thereafter, the Manager shall receive an amount
equal to one-quarter of the average of the annual aggregate of all compensation
incurred under this Agreement and its predecessors during the three fiscal years
prior to the fiscal year in which termination occurred.
(c) The events referred to in Section 19(b) are as follows:
(i) Any corporation, person or other entity (other than the
Company, the Manager or their respective affiliates) makes a tender or exchange
offer for shares of the Company's Common Stock pursuant to which such
corporation, person or other entity acquires 15% or more of the issued and
outstanding shares of the Company's Common Stock;
(ii) The stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into another corporation
or to sell or otherwise dispose of all or substantially all of its assets,
except in the case of a merger or consolidation with, or sale to, the Manager or
an affiliate of the Manager; or
(iii) Any person, within the meaning of Section 3(a)(9) or
Section 13(d)(3) of the Securities Exchange Act of 1934, acquires more than 15%
(30% in the case of a passive investor) of the Company's issued and outstanding
voting securities.
SECTION 20. RELEASE OF MONEY OR OTHER PROPERTY UPON WRITTEN REQUEST.
The Manager agrees that any money or other property of the Company or any
subsidiary of the Company held by the Manager under this Agreement shall be held
by the Manager as custodian for the Company or such subsidiary, and the
Manager's records shall be appropriately marked clearly to reflect the ownership
of such money or other property by the Company or such subsidiary. Upon the
receipt by the Manager of a written request signed by a duly authorized officer
of the Company requesting the Manager to release to the Company or any
subsidiary of the Company any money or other property then held by the Manager
for the account of the Company or any subsidiary of the Company under this
Agreement,
33
the Manager shall forthwith release such money or other property to the Company
or such subsidiary. The Manager shall not be liable to the Company, any
subsidiary of the Company, the Unaffiliated Directors, or the Company's or its
subsidiary's stockholders for any acts performed or omissions to act by the
Company or any subsidiary of the Company in connection with the money or other
property released to the Company or any subsidiary of the Company in accordance
with this Section. The Company and any subsidiary of the Company shall
indemnify the Manager, its directors, officers and employees against any and all
expenses, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever, which arise in connection with the Manager's release of such
money or other property to the Company or any subsidiary of the Company in
accordance with the terms of this Section 20 of this Agreement, except insofar
as such expenses, losses, damages, liabilities, demands, charges and claims
arise out of acts of the Manager, its directors, officers and employees
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of their duties. Indemnification pursuant to this provision shall be
in addition to any right of the Manager to indemnification under Section 13 of
this Agreement.
SECTION 21. REPRESENTATIONS AND WARRANTIES.
(a) The Company hereby represents and warrants to the Manager as
follows:
(i) The Company has been duly organized and is validly existing
and in good standing under the laws of the State of Delaware; the Company has
the corporate power to own its assets and to transact the business in which it
is now engaged and is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, except for
failures to be so qualified, authorized or licensed that could not in the
aggregate have a material adverse effect on the business operations, assets or
financial condition of the Company and its subsidiaries, taken as a whole. The
Company does not do business under any fictitious business name.
(ii) The Company has the corporate power and authority to
execute, deliver and perform this Agree-
34
ment and all obligations required hereunder and has taken all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement and all obligations required hereunder. No consent of any other
person including, without limitation, directors, stockholders and creditors of
the Company, and no license, permit, approval or authorization of, exemption by,
notice or report to, or registration, filing or declaration with, any
governmental authority is required by the Company in connection with this
Agreement or the execution, delivery, performance, validity or enforceability of
this Agreement and all obligations required hereunder. This Agreement has been,
and each instrument or document required hereunder will be, executed and
delivered by a duly authorized officer of the Company, and this Agreement
constitutes, and each instrument or document required hereunder when executed
and delivered hereunder will constitute, the legally valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
(iii) The execution, delivery and performance of this Agreement
and the documents or instruments required hereunder will not violate any
provision of any existing law or regulation binding on the Company, or any
order, judgment, award or decree of any court, arbitrator or governmental
authority binding on the Company, or the Governing Instruments of, or any
securities issued by, the Company or of any mortgage, indenture, lease, contract
or other agreement, instrument or undertaking to which the Company is a party or
by which the Company or any of its assets may be bound, the violation of which
would have a material adverse effect on the business operations, assets or
financial condition of the Company and its subsidiaries, taken as a whole, and
will not result in, or require, the creation or imposition of any lien on any of
its property, assets or revenues pursuant to the provisions of any such
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking.
(b) The Manager hereby represents and warrants to the Company as
follows:
(i) The Manager is duly organized, validly existing and in good
standing under the laws of the State of Delaware; the Manager has the power to
own its assets and to transact the business in which it is now
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engaged and is duly qualified to do business and is in good standing under the
laws of each jurisdiction where its ownership or lease of property or the
conduct of its business requires such qualification, except for failures to be
so qualified, authorized or licensed that could not in the aggregate have a
material adverse effect on the business operations, assets or financial
condition of the Manager and its subsidiaries, taken as a whole. The Manager
does not do business under any fictitious business name.
(ii) The Manager has the power and authority to execute, deliver
and perform this Agreement and all obligations required hereunder and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Agreement and all obligations required hereunder. No
consent of any other person including, without limitation, directors and
creditors of the Manager, and no license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required by the Manager in connection with this
Agreement or the execution, delivery, performance, validity or enforceability of
this Agreement and all obligations required hereunder. This Agreement has been,
and each instrument or document required hereunder will be, executed and
delivered by a duly authorized agent of the Manager, and this Agreement
constitutes, and each instrument or document required hereunder when executed
and delivered hereunder will constitute, the legally valid and binding
obligation of the Manager enforceable against the Manager in accordance with its
terms.
(iii) The execution, delivery and performance of this
Agreement and the documents or instruments required hereunder, will not violate
any provision of any existing law or regulation binding on the Manager, or any
order, judgment, award or decree of any court, arbitrator or governmental
authority binding on the Manager, or the Governing Instruments of, or any
securities issued by, the Manager or of any mortgage, indenture, lease, contract
or other agreement, instrument or undertaking to which the Manager is a party or
by which the Manager or any of its assets may be bound, the violation of which
would have a material adverse effect on the business operations, assets or
financial condition of the Manager
36
and its subsidiaries, taken as a whole, and will not result in, or require, the
creation or imposition of any lien on any of its property, assets or revenues
pursuant to the provisions of any such mortgage, indenture, lease, contract or
other agreement, instrument or undertaking.
SECTION 22. NOTICES. Unless expressly provided otherwise herein, all
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given,
made and received when delivered against receipt or upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
(a) If to the Company:
3600 South Yosemite Street
Suite 900
Denver, Colorado 80237
Attention: President
with a copy given in the manner prescribed above, to the Chief
Operating Officer/Chief Financial Officer, Chief Accounting Officer
and each member of the Board of Directors at their addresses as set
forth in the records of the Company.
If to the Manager:
3600 South Yosemite Street
Suite 900
Denver, Colorado 80237
Attention: President
with a copy given in the manner prescribed above, to the General
Counsel at the same address.
Either party may alter the address to which communications or copies
are to be sent by giving notice of such change of address in conformity with
the provisions of this Section 22 for the giving of notice.
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SECTION 23. BINDING NATURE OF AGREEMENT, SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, personal representatives, successors and
assigns as provided herein.
SECTION 24. ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties hereto 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.
SECTION 25. CONTROLLING LAW. This Agreement and all questions
relating to its validity, interpretation, performance and enforcement shall be
governed by and construed, interpreted and enforced in accordance with the laws
of the State of Colorado, notwithstanding any Colorado or other conflict-of-law
provisions to the contrary.
SECTION 26. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
SECTION 27. COMPUTATION OF INTEREST. Interest will be computed on
the basis of a 360-day year consisting of twelve months of thirty days each.
SECTION 28. INDULGENCES, NOT WAIVERS. 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.
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SECTION 29. COSTS AND EXPENSES. Each party hereto shall bear its
own costs and expenses (including the fees and disbursements of counsel and
accountants) incurred in connection with the negotiations and preparation of and
the closing under this Agreement, and all matters incident thereto.
SECTION 30. SCHEDULES AND EXHIBITS. All Schedules and Exhibits
referred to herein or attached hereto are hereby incorporated by reference into,
and made a part of, this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
COMMERCIAL ASSETS, INC.
Attest: By:
--------------------------- ------------------------------------
Name:
Title:
FINANCIAL ASSET MANAGEMENT
CORPORATION
By:
------------------------------------
Name:
Title:
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