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EXHIBIT 10.1
ADVISORY AGREEMENT
BETWEEN
CONTINENTAL MORTGAGE AND EQUITY TRUST
AND
BASIC CAPITAL MANAGEMENT, INC.
THIS AGREEMENT dated as of March 7, 1995, between Continental Mortgage
and Equity Trust, a California real estate investment trust (the "Trust"), and
Basic Capital Management, Inc., a Nevada corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS:
1. The Trust owns a complex, diversified portfolio of real estate,
mortgages and other assets, including many non-performing or troubled assets.
2. The Trust is an active real estate investment trust with funds
available for investment primarily in the acquisition of income-producing real
estate and to a lesser extent in short and medium term mortgages.
3. The Advisor and its employees have extensive experience in the
administration of real estate assets and the origination, structuring and
evaluation of real estate and mortgage investments.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties agree as
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follows:
1. DUTIES OF THE ADVISOR. Subject to the supervision of the Board of
Trustees, the Advisor will be responsible for the day-to-day operations of the
Trust and, subject to Section 17 hereof, shall provide such services and
activities relating to the assets, operations and business plan of the Trust as
may be appropriate, including:
(a) preparing and submitting an annual budget and business plan
for approval by the Board of the Trust (the "Business Plan");
(b) using its best efforts to present to the Trust a continuing
and suitable investment program consistent with the investment policies and
objectives of the Trust as set forth in the Business Plan;
(c) using its best efforts to present to the Trust investment
opportunities consistent with the Business Plan and such investment program as
the Trustees may adopt from time to time;
(d) furnishing or obtaining and supervising the performance of
the ministerial functions in connection with the administration of the
day-to-day operations of the Trust, including the investment of reserve funds
and surplus cash in short-term money market investments;
(e) serving as the Trust's investment and financial advisor and
providing research, economic, and statistical data in connection with the
Trust's investments and investment and
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financial policies;
(f) on behalf of the Trust, investigating, selecting and
conducting relations with borrowers, lenders, mortgagors, brokers, investors,
builders, developers and others; provided however, that the Advisor shall not
retain on the Trust's behalf any consultants or third party professionals,
other than legal counsel, without prior Board approval;
(g) consulting with the Trustees and furnishing the Trustees
with advice and recommendations with respect to the making, acquiring (by
purchase, investment, exchange, or otherwise), holding, and disposition
(through sale, exchange, or otherwise) of investments consistent with the
Business Plan of the Trust;
(h) obtaining for the Trustees such services as may be required
in acquiring and disposing of investments, disbursing and collecting the funds
of the Trust, paying the debts and fulfilling the obligations of the Trust, and
handling, prosecuting, and settling any claims of the Trust, including
foreclosing and otherwise enforcing mortgage and other liens securing
investments;
(i) obtaining for and at the expense of the Trust such services
as may be required for property management, loan disbursements, and other
activities relating to the investments of the Trust, provided, however, the
compensation for such services shall be agreed to by the Trust and the service
provider;
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(j) advising the Trust in connection with public or private sales
of shares or other securities of the Trust, or loans to the Trust, but in no
event in such a way that the Advisor could be deemed to be acting as a broker
dealer or underwriter;
(k) quarterly and at any time requested by the Trustees, making
reports to the Trustees regarding the Trust's performance to date in relation
to the Trust's approved Business Plan and its various components , as well as
the Advisor's performance of the foregoing services;
(l) making or providing appraisal reports, where appropriate, on
investments or contemplated investments of the Trust;
(m) assisting in preparation of reports and other documents
necessary to satisfy the reporting and other requirements of any governmental
bodies or agencies and to maintain effective communications with shareholders
of the Trust; and
(n) doing all things necessary to ensure its ability to render
the services contemplated herein, including providing office space and office
furnishings and personnel necessary for the performance of the foregoing
services as Advisor, all at its own expense, except as otherwise expressly
provided for herein.
2. NO PARTNERSHIP OR JOINT VENTURE. The Trust and the Advisor are not
partners or joint venturers with each other,
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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.
3. RECORDS. At all times, the Advisor shall keep proper books of account
and records of the Trust's affairs which shall be accessible for inspection by
the Trust at any time during ordinary business hours.
4. ADDITIONAL OBLIGATIONS OF THE ADVISOR. The Advisor shall refrain from
any action (including, without limitation, furnishing or rendering services to
tenants of property or managing or operating real property) that would (a)
adversely affect the status of the Trust as a real estate investment trust, as
defined and limited in Sections 856-860 of the Internal Revenue Code, (b)
violate any law, rule, regulation, or statement of policy of any governmental
body or agency having jurisdiction over the Trust or over its securities, (c)
cause the Trust to be required to register as an investment company under the
Investment Company Act of 1940, or (d) otherwise not be permitted by the
Declaration of Trust of the Trust.
5. BANK ACCOUNTS. The Advisor 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 Trust, under such terms and conditions as the Trustees may
approve, provided that no funds in any such account shall be commingled
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with funds of the Advisor; and the Advisor shall from time to time render
appropriate accounting of such collections and payments to the Trustees and to
the auditors of the Trust.
6. BOND. The Advisor shall maintain a fidelity bond with a responsible
surety company in such amount as may be required by the Trustees from time to
time, covering all directors, officers, employees, and agents of the Advisor
handling funds of the Trust and any investment documents or records pertaining
to investments of the Trust. Such bond shall inure to the benefit of the Trust
in respect to 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 to be at the expense
of the Trust.
7. INFORMATION FURNISHED ADVISOR. The Trustees shall have the right to
change the Business Plan at any time, effective upon receipt by the Advisor of
notice of such change. The Trust 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 Trust's affairs as the Advisor may from time to time reasonably
request.
8. CONSULTATION AND ADVICE. In addition to the services
described above, the Advisor shall consult with the Trustees, and shall, at the
request of the Trustees or the officers of the Trust, furnish advice and
recommendations with respect to
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any aspect of the business and affairs of the Trust, including any factors that
in the Advisor's best judgment should influence the policies of the Trust.
9. ANNUAL BUSINESS PLAN AND BUDGET. No later than January 15th of each
year, the Advisor shall submit to the Trustees a written Business Plan for the
current Fiscal Year of the Trust. Such Business Plan shall include a
twelve-month forecast of operations and cash flow with explicit assumptions and
a general plan for asset sales or acquisitions, lending, foreclosure and
borrowing activity, other investments or ventures and proposed securities
offerings or repurchases or any proposed restructuring of the Trust. To the
extent possible, the Business Plan shall set forth the Advisor's
recommendations and the basis therefor with respect to all material investments
of the Trust. Upon approval by the Board of Trustees, the Advisor shall be
authorized to conduct the business of the Trust in accordance with the explicit
provisions of the Business Plan, specifically including the borrowing, leasing,
maintenance, capital improvements, renovations and sale of investments set
forth in the Business Plan. Any transaction or investment not explicitly
provided for in the approved Business Plan shall require the prior approval of
the Board of Trustees unless made pursuant to authority expressly delegated to
the Advisor. Within sixty (60) days of the end of each calendar quarter, the
Advisor shall provide the Board of Trustees with a report comparing the
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Trust's actual performance for such quarter against the Business Plan.
10. DEFINITIONS. As used herein, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean, as to any Person, any other Person
who owns beneficially, directly, or indirectly, 1% or more of the outstanding
capital stock, shares or equity interests of such Person or of any other
Person which controls, is controlled by, or is under common control with such
Person or is an officer, retired officer, director, employee, partner, or
trustee (excluding non-interested trustees not otherwise affiliated with the
entity) of such Person or of any other Person which controls, is controlled by,
or is under common control with, such Person.
(b) "Appraised Value" shall mean the value of a Real Property
according to an appraisal made by an independent qualified appraiser who is a
member in good standing of the American Institute of Real Estate Appraisers and
is duly licensed to perform such services in accordance with the applicable
state law, or, when pertaining to Mortgage Loans, the value of the underlying
property as determined by the Advisor.
(c) "Book Value" of an asset or assets shall mean the value of
such asset or assets on the books of the Trust, before provision for
amortization, depreciation, depletion or valuation reserves and before
deducting any indebtedness or other liability in respect thereof, except that
no asset shall
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be valued at more than its fair market value as determined by the Trustees.
(d) "Book Value of Invested Assets" shall mean the Book Value of
the Trust's total assets (without deduction of any liabilities), but excluding
(i) goodwill and other intangible assets, (ii) cash, and (iii) cash equivalent
investments with terms which mature in one year or less.
(e) "Business Plan" shall mean the Trust's investment policies
and objectives and the capital and operating budget based thereon, approved by
the Board as thereafter modified or amended.
(f) "Fiscal Year" shall mean any period for which an income tax
return is submitted to the Internal Revenue Service and which is treated by the
Internal Revenue Service as a reporting period.
(g) "Gross Asset Value" shall mean the total assets of the Trust
after deduction of allowance for amortization, depreciation or depletion and
valuation reserves.
(h) "Mortgage Loans" shall mean notes, debentures, bonds, and
other evidences of indebtedness or obligations, whether negotiable or
non-negotiable, and which are secured or collateralized by mortgages, including
first, wraparound, construction and development, and junior mortgages.
(i) "Net Asset Value" shall mean the Book Value of all the assets
of the Trust minus all the liabilities of the Trust.
(j) "Net Income" for any period shall mean the Net
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Income of the Trust for such period computed in accordance with generally
accepted accounting principles after deduction of the Gross Asset Fee, but
before deduction of the Net Income Fee, as set forth in Sections 11(a) and
11(b), respectively, herein, and inclusive of gain or loss of the sale of
assets.
(k) "Net Operating Income" shall mean rental income less property
operating expenses.
(l) "Person" shall mean and include individuals, corporations,
limited partnerships, general partnerships, joint stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments
and agencies and political subdivisions thereof.
(m) "Real Property" shall mean and include land, rights in land,
leasehold interests (including but not limited to interests of a lessor or
lessee therein), and any buildings, structures, improvements, fixtures, and
equipment located on or used in connection with land, leasehold interests, and
rights in land or interests therein.
All calculations made pursuant to this Agreement shall be
based on statements (which may be unaudited, except as provided herein)
prepared on an accrual basis consistent with generally accepted accounting
principles, regardless of whether the Trust may also prepare statements on a
different basis. All other terms shall have the same meaning as set forth in
the Trust's Declaration of Trust and Trustees' Regulations.
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11. ADVISORY COMPENSATION.
(a) Gross Asset Fee. On or before the twenty-eighth day of each
month during the term hereof the Trust shall pay to the Advisor, as
compensation for the basic management and advisory services rendered to the
Trust hereunder, a fee at the rate of .0625% per month of the average of the
Gross Asset Value of the Trust at the beginning and at the end of the next
preceding calendar month. Without negating the provisions of Sections 18, 19,
22 and 23 hereof, the annual rate of the Gross Asset Fee shall be .75% per
annum.
(b) Net Income Fee. As an incentive for successful investment
and management of the Trust's assets, the Advisor will be entitled to receive a
fee equal to 7.5% per annum of the Trust's Net Income for each Fiscal Year or
portion thereof for which the Advisor provides services. To the extent the
Trust has Net Income in a quarter, the 7.5% Net Income Fee is to be paid
quarterly on or after the third business day following the filing of the report
on Form 10-Q with the Securities and Exchange Commission, except for the
payment for the fourth quarter, ended December 31, which is to be paid on or
after the third business day following the filing of the report on Form 10-K
with the Securities and Exchange Commission. The 7.5% Net Income Fee is to be
cumulative within any Fiscal Year, such that if the Trust has a loss in any
quarter during the Fiscal Year, each subsequent quarter's payment shall be
adjusted to maintain the 7.5% per annum rate, with final settlement being made
with the fourth quarter
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payment and in accordance with audited results for the Fiscal Year. The 7.5%
Net Income Fee is not cumulative from year to year.
(c) Acquisition Commission. For supervising the acquisition,
purchase or long term lease of Real Property for the Trust, the Advisor is to
receive an Acquisition Commission equal to the lesser of (i) up to 1% of the
cost of acquisition, inclusive of commissions, if any, paid to nonaffiliated
brokers; or (ii) the compensation customarily charged in arm's-length
transactions by others rendering similar property acquisition services as an
ongoing public activity in the same geographical location and for comparable
property. The aggregate of each purchase price of each property (including the
Acquisition Commissions and all real estate brokerage fees) may not exceed such
property's Appraised Value at acquisition.
(d) Incentive Sales Compensation. To encourage periodic sales of
appreciated Real Property at optimum value and to reward the Advisor for
improved performance of the Trust's Real Property, the Trust shall pay to the
Advisor, on or before the 45th day after the close of each Fiscal Year, an
incentive fee equal to 10% of the amount, if any, by which the aggregate sales
consideration for all Real Property sold by the Trust during such Fiscal Year
exceeds the sum of: (i) the cost of each such Real Property as originally
recorded in the Trust's books for tax purposes (without deduction for
depreciation, amortization or reserve for losses), (ii) capital
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improvements made to such assets during the period owned by the Trust, and
(iii) all closing costs, (including real estate commissions) incurred in the
sale of such Real Property; provided, however, no incentive fee shall be paid
unless (a) such Real Property sold in such Fiscal Year, in the aggregate, has
produced an 8% simple annual return on the Trust's net investment including
capital improvements, calculated over the Trust's holding period before
depreciation and inclusive of operating income and sales consideration and (b)
the aggregate Net Operating Income from all Real Property owned by the Trust
for all of the prior Fiscal Year and the current Fiscal Year shall be at least
5% higher in the current Fiscal Year than in the prior Fiscal Year.
(e) Mortgage or Loan Acquisition Fees. For the acquisition or
purchase from an unaffiliated party of any existing mortgage or loan by the
Trust, the Advisor or an Affiliate is to receive a Mortgage or Loan Acquisition
Fee equal to the lesser of (a) 1% of the amount of the mortgage or loan
purchased by the Trust or (b) a brokerage or commitment fee which is reasonable
and fair under the circumstances. Such fee will not be paid in connection with
the origination or funding by the Trust of any mortgage loan.
(f) Mortgage Brokerage and Equity Refinancing Fees. For obtaining
loans to the Trust or refinancing on Trust properties, the Advisor or an
Affiliate is to receive a Mortgage Brokerage and Equity Refinancing Fee equal
to the
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lesser of (a) 1% of the amount of the loan or the amount refinanced or (b) a
brokerage or refinancing fee which is reasonable and fair under the
circumstances; provided, however that no such fee shall be paid on loans from
the Advisor or an Affiliate without the approval of the Board of Trustees. No
fee shall be paid on loan extensions.
12. LIMITATION ON THIRD PARTY MORTGAGE PLACEMENT FEES. The Advisor or any
of its Affiliates shall pay to the Trust, one-half of any compensation received
by the Advisor or any such Affiliate from third parties with respect to the
origination, placement or brokerage of any loan made by the Trust, provided,
however, the compensation retained by the Advisor or Affiliate shall not exceed
the lesser of (a) 2% of the amount of the loan committed by the Trust or (b) a
loan brokerage and commitment fee which is reasonable and fair under the
circumstances.
13. STATEMENTS. The Advisor shall furnish to the Trust not later than the
tenth day of each calendar month, beginning with the second calendar month of
the term of this Agreement, a statement showing the computation of the fees, if
any, payable in respect to the next preceding calendar month (or, in the case
of incentive compensation, for the preceding Fiscal Year, as appropriate) under
the Agreement. The final settlement of incentive compensation for each Fiscal
Year shall be subject to adjustment in accordance with, and upon completion of,
the annual audit of the Trust's financial statements; any payment
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by the Trust or repayment by the Advisor that shall be indicated to be
necessary in accordance therewith shall be made promptly after the completion
of such audit and shall be reflected in the audited statements to be published
by the Trust.
14. COMPENSATION FOR ADDITIONAL SERVICES. If and to the extent that the
Trust shall request the Advisor or any director, officer, partner, or employee
of the Advisor to render services for the Trust other than those required to be
rendered by the Advisor hereunder, such additional services, if performed, will
be compensated separately on terms to be agreed upon between such party and the
Trust from time to time. In particular, but without limitation, if the Trust
shall request that the Advisor perform property management, leasing, loan
disbursement or similar functions, the Trust and the Advisor shall enter into a
separate agreement specifying the obligations of the parties and providing for
reasonable additional compensation to the Advisor for performing such services.
15. EXPENSES OF THE ADVISOR. Without regard to the amount of compensation
or reimbursement received hereunder by the Advisor, the Advisor shall bear the
following expenses:
(a) employment expenses of the personnel employed by the Advisor
(including Trustees, officers, and employees of the Trust who are directors,
officers, or employees of the Advisor or of any company that controls, is
controlled by, or is under
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common control with the Advisor), including, but not limited to, fees,
salaries, wages, payroll taxes, travel expenses, and the cost of employee
benefit plans and temporary help expenses except for those personnel expenses
described in Sections 16(e) and (p);
(b) advertising and promotional expenses incurred in seeking
investments for the Trust;
(c) rent, telephone, utilities, office furniture and furnishings,
and other office expenses of the Advisor and the Trust, except as any of such
expenses relates to an office maintained by the Trust separate from the office
of the Advisor; and
(d) miscellaneous administrative expenses relating to performance
by the Advisor of its functions hereunder.
16. EXPENSES OF THE TRUST. The Trust shall pay all of its expenses not
assumed by the Advisor, including without limitation, the following expenses:
(a) the cost of money borrowed by the Trust;
(b) income taxes, taxes and assessments on real property, and all
other taxes applicable to the Trust;
(c) legal, auditing, accounting, underwriting, brokerage,
listing, registration and other fees, printing, and engraving and other
expenses, and taxes incurred in connection with the issuance, distribution,
transfer, registration, and stock exchange listing of the Trust's securities;
(d) fees, salaries, and expenses paid to officers, and
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employees of the Trust who are not directors, officers or employees of the
Advisor, or of any company that controls, is controlled by, or is under common
control with the Advisor;
(e) expenses directly connected with the origination or purchase
of Mortgage Loans and with the acquisition, disposition, and ownership of real
estate equity interests or other property (including the costs of foreclosure,
insurance, legal, protective, brokerage, maintenance, repair, and property
improvement services) and including all compensation, traveling expenses, and
other direct costs associated with the Advisor's employees or other personnel
engaged in (i) real estate transaction legal services, (ii) internal auditing,
(iii) foreclosure and other mortgage finance services, (iv) sale or
solicitation for sale of mortgages, (v) engineering and appraisal services, and
(vi) transfer agent services;
(f) expenses of maintaining and managing real estate equity
interests;
(g) insurance, as required by the Trustees (including Trustees'
liability insurance);
(h) the expenses of organizing, revising, amending, converting,
modifying, or terminating the Trust;
(i) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by the
Trustees to holders of securities of the Trust;
(j) all expenses connected with communications to
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holders of securities of the Trust 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 Trust's securities;
(k) the cost of any accounting, statistical, bookkeeping or
computer equipment or computer time necessary for maintaining the books and
records of the Trust and for preparing and filing Federal, State and Local tax
returns;
(l) transfer agent's, registrar's, and indenture trustee's fees
and charges;
(m) legal, accounting, investment banking, and auditing fees and
expenses charged by independent parties performing these services not otherwise
included in clauses (c) and (e) of this Section 16;
(n) expenses incurred by the Advisor, arising from the sales of
Trust properties, including those expenses related to carrying out foreclosure
proceedings;
(o) commercially reasonable fees paid to the Advisor for efforts
to liquidate mortgages before maturity, such as the solicitation of offers and
negotiation of terms of sale;
(p) costs and expenses connected with computer services,
including but not limited to employee or other personnel compensation, hardware
and software costs, and related development and installation costs associated
therewith;
(q) costs and expenses associated with risk management
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(i.e. insurance relating to the Trust's assets );
(r) loan refinancing compensation; and
(s) expenses associated with special services requested by the
Trustees pursuant to Section 14 hereof.
17. OTHER ACTIVITIES OF ADVISOR. The Advisor, its officers, directors, or
employees or any of its Affiliates may engage in other business activities
related to real estate investments or act as advisor to any other person or
entity (including another real estate investment trust), including those with
investment policies similar to the Trust, and the Advisor and its officers,
directors, or employees and any of its Affiliates shall be free from any
obligation to present to the Trust any particular investment opportunity that
comes to the Advisor or such persons, regardless of whether such opportunity is
in accordance with the Trust's Business Plan. However, to minimize any
possible conflict, the Advisor shall consider the respective investment
objectives of, and the appropriateness of a particular investment to each such
entity in determining to which entity a particular investment opportunity
should be presented. If appropriate to more than one entity, the Advisor shall
present the investment opportunity to the entity that has had sufficient
uninvested funds for the longest period of time.
18. LIMITATION ON OPERATING EXPENSES. To the extent that the operating
expenses of the Trust for any Fiscal Year exceeds the limitation set forth in
the Trust's Declaration of Trust as amended from time to time, or any similar
limitation (if
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contained) in a successor Declaration of Trust or Certificate of Incorporation,
the Advisor shall refund to the Trust such portion of its fees payable
hereunder as may be required by such Section.
19. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in
force until the next Annual Meeting of Shareholders of the Trust, and,
thereafter, it may be renewed from year to year, subject to any required
approval of the Shareholders of the Trust and, if any Trustee is an Affiliate
of the Advisor, the approval of a majority of the Trustees who are not so
affiliated. Notice of renewal shall be given in writing by the Trustees to the
Advisor not less than 60 days before the expiration of this Agreement or of any
extension thereof. This Agreement may be terminated for any reason without
penalty upon 60 days' written notice by the Trust to the Advisor or 120 days'
written notice by the Advisor to the Trust, in the former case by the vote of a
majority of the Trustees who are not Affiliates of the Advisor or by the vote
of holders of a majority of the outstanding shares of the Trust.
Notwithstanding the foregoing, however, in the event of any material change in
the ownership, control or management of the Advisor, the Trust may terminate
this Agreement without penalty and without advance notice to the Advisor.
20. 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
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provided herein.
21. ASSIGNMENT. This Agreement shall not be assigned by the Advisor
without the prior consent of the Trust. The Trust may terminate this Agreement
in the event of its assignment by the Advisor without the prior consent of the
Trust. Such an assignment or any other assignment of this Agreement by the
Advisor shall bind the assignee hereunder in the same manner as the Advisor is
bound hereunder. This Agreement shall not be assignable by the Trust without
the consent of the Advisor, except in the case of assignment by the Trust to a
corporation, association, trust, or other organization that is a successor to
the Trust. Such successor shall be bound hereunder and by the terms of said
assignment in the same manner as the Trust is bound hereunder.
22. DEFAULT, BANKRUPTCY, ETC. At the option solely of the Trustees, this
Agreement shall be and become terminated immediately upon written notice of
termination from the Trustees to the Advisor if any of the following events
shall occur:
(a) If the Advisor shall violate any provision of this Agreement,
and after notice of such violation shall not cure such default within 30 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
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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 30 days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization under the Federal
bankruptcy laws, or for relief under any law for 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 its creditors, or shall admit in writing its inability to pay its
debts generally, as they become due.
The Advisor agrees that if any of the events specified in
subsections (b) and (c) of this Section 22 shall occur, it will give written
notice thereof to the Trustees within seven days after the occurrence of such
event.
23. ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the
Advisor shall not be entitled to compensation for further services hereunder
but shall be paid all compensation accruing to the date of termination. The
Advisor shall forthwith upon such termination:
(a) pay over to the Trust all monies collected and held for the
account of the Trust pursuant to this Agreement;
(b) deliver to the Trustees a full accounting, including a
statement showing all payments collected by it and
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a statement of any monies held by it, covering the period following the date
of the last accounting furnished to the Trustees; and
(c) deliver to the Trustees all property and documents of the
Trust then in the custody of the Advisor.
24. MISCELLANEOUS. The Advisor shall be deemed to be in a fiduciary
relationship to the shareholders of the Trust. 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
Trustees in following or declining to follow any advice or recommendations of
the Advisor. Neither the Advisor nor any of its shareholders, directors,
officers, or employees shall be liable to the Trust, the Trustees, the holders
of securities of the Trust or to any successor or assign of the Trust for any
losses arising from the operation of the Trust if the Advisor had determined,
in good faith, that the course of conduct which caused the loss or liability
was in the best interests of the Trust and the liability or loss was not the
result of negligence or misconduct by the Advisor. However, in no event will
the directors, officers or employees of the Advisor be personally liable for
any act or failure to act unless it was the result of such person's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
25. 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
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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 Trustees and/or the Trust:
Continental Mortgage and Equity Trust
Search Plaza
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President
The Advisor:
Basic Capital Management, Inc.
Search Plaza
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Executive Vice President
and Chief Financial Officer
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 25.
26. 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.
27. GOVERNING LAW. This Agreement has been prepared, negotiated and
executed in the State of Texas. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas
applicable to agreements made and to be performed entirely in the State of
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Texas.
28. EXECUTION. This instrument is executed and made on behalf of the
Trust by an officer of the Trust, not individually but solely as an officer and
the obligations under this Agreement are not binding upon, nor shall resort be
had to the private property of, any of the Trustees, shareholders, officers,
employees, or agents of the Trust personally, but bind only the Trust property.
IN WITNESS WHEREOF, CONTINENTAL MORTGAGE AND EQUITY TRUST, and BASIC
CAPITAL MANAGEMENT, INC., by their duly authorized officers, have signed these
presents all as of the day and year first above written.
CONTINENTAL MORTGAGE AND EQUITY TRUST
By: /s/ Oscar W. Cashwell
----------------------------------
Oscar W. Cashwell
President
BASIC CAPITAL MANAGEMENT, INC.
By: /s/ Hamilton P. Schrauff
---------------------------------
Hamilton P. Schrauff
Executive Vice President
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