EXECUTION COPY
Exhibit (e)(1)
ADVISORY SERVICES AGREEMENT BETWEEN
βββββ� GOVERNMENT INCOME TRUST
AND
βββββ� MORTGAGE ADVISORS LIMITED PARTNERSHIP
Agreement dated as of this 19th day of April 1990, between βββββ�
GOVERNMENT INCOME TRUST (the "Trust"), a Massachusetts business trust, and βββββ�
MORTGAGE ADVISORS LIMITED PARTNERSHIP (the "Advisor"), a Massachusetts limited
partnership.
W I T N E S S E T H :
WHEREAS, the Trust is a business trust organized under the laws of The
Commonwealth of Massachusetts, which intends to qualify as a real estate
investment trust as defined in the Internal Revenue Code of 1986, as the same
may be amended or modified from time to time (which, together with any
regulations and rulings thereunder, is hereafter called the "Code"), and to
invest its funds in the investments permitted in its Declaration of Trust;
WHEREAS, the Trust is authorized to offer to the public during its Initial
Public Offering up to 15,000,000 shares of beneficial interest (the "Shares");
WHEREAS, the Trust has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, covering
certain of its securities to be offered to the public, and the Trust may
thereafter sell additional securities or otherwise raise additional capital;
WHEREAS, the Trust desires to avail itself of the experience, sources of
information, advice, assistance and certain facilities available to the Advisor
and to have the Advisor undertake the duties and responsibilities hereinafter
set forth, on behalf of and subject to the supervision of the Trustees (the
"Trustees") of the Trust, all as provided herein; and
WHEREAS, the Advisor is willing to render such services, subject to the
supervision of the Trustees, on the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
IT IS AGREED as follows:
1. DUTIES OF ADVISOR. The Trust hereby retains the Advisor as investment
advisor of the Trust to perform the services hereinafter set forth, and the
Advisor hereby accepts such appointment, subject to the terms and conditions
hereinafter set forth. The Advisor undertakes to use its best efforts to present
to the Trust: (a) investment
opportunities consistent with the investment policies and objectives of the
Trust; and (b) investment opportunities consistent with such investment programs
as the Trustees may adopt from time to time. In performance of this undertaking,
subject to the supervision and review of the Trustees and consistent with the
provisions of the Trust's Declaration of Trust, the Advisor shall:
(i) obtain, furnish and supervise the performance of such
ministerial functions in connection with the management of the day-to-day
operations of the Trust subject to the supervision of the Trustees;
(ii) exercise absolute discretion, subject to the Trustees'
review, in decisions to acquire, retain, sell, service or negotiate future
prepayment of Mortgages;
(iii) seek out, present and recommend investment opportunities
consistent with the Trust's investment policies and objectives and
negotiate on behalf of the Trust with respect to potential investments or
the disposition thereof;
(iv) when necessary, serve as the mortgagee of record for the
Mortgages of the Trust and in that capacity hold escrows on behalf of
mortgagors in connection with the servicing of Mortgages, which it may
deposit with various banks including banks with which it may be
affiliated;
(v) obtain for the Trust 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 Mortgages and other liens
securing investments;
(vi) obtain for the Trust such services as may be required for
property management, mortgage brokerage and servicing, and other
activities relating to the investment portfolio of the Trust;
(vii) evaluate, structure and negotiate potential prepayments
or sales of Mortgages, coordinating with government agencies and FNMA and
FHLMC in connection therewith;
(viii) monitor and verify computations of Additional
Interest payments and monitor operations and expenses of the properties
underlying the Mortgages;
(ix) from time to time, or as requested by the trustees,
make reports to the Trust as to its performance of the foregoing
services; and
(x) exercise absolute discretion, subject to the
Trustees' review, in any decision to list the Shares on any national
securities exchange; and
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(xi) do all things necessary to assure its ability to
render the services contemplated herein.
2. FIDUCIARY RELATIONSHIP. The Advisor, as a result of its relationship
with the Trust pursuant to this Agreement, stands in a fiduciary relationship
with the Trust and its Shareholders. Accordingly, the Advisor will use its best
efforts to present to the Trust suitable investments which are consistent with
the investment objectives and policies of the Trust. Except for the allocation
of investment opportunities between the Trust and Affiliates as described in the
prospectus, the Advisor shall be obligated to present an investment opportunity
to the Trust if (i) such opportunity is of a character which could be taken by
the Trust, (ii) such opportunity is compatible with the Trust's investment
objectives and policies and (iii) the Trust has the financial resources to take
advantage of such opportunity, before the Advisor may take advantage of such
opportunity for its own account or present or recommend it to others.
3. NO PARTNERSHIP OR JOINT VENTURE. The Trust and the Advisor are not
partners or joint venturers with each other and nothing herein shall be
construed to make them partners or joint venturers or impose any liability as
such on either of them.
4. RECORDS. At all times, the Advisor shall keep books of account and
records relating to services performed hereunder, which books of account and
records shall be accessible for inspection by the Trust at any time during the
ordinary business hours of the Advisor.
5. REIT QUALIFICATION. Anything else in this Agreement to the contrary
notwithstanding, the Advisor shall refrain from any action (including, without
limitation, furnishing or rendering services to tenants of property or managing
or operating real property) which, in its sole judgment made in good faith, or,
in the judgment of the Trustees, provided that the Trustees give the Advisor
written notice to such effect, would: (a) adversely affect the status of the
Trust as a real estate investment trust pursuant to Sections 856 through 860 of
the 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; or (c) be prohibited by the Trust's Declaration of Trust.
6. BANK ACCOUNTS. The Advisor may establish and maintain one or more bank
accounts in its own name and may collect and deposit in any such account, and
disburse from any such account, any money on behalf of the Trust, under such
terms and conditions as the Trustees may approve, provided that no funds in such
account shall be commingled with funds of any other Person. From time to time
and upon appropriate request, the Advisor shall render appropriate accounting of
such collections and payments to the Trustees and the auditors of the Trust.
7. BOND. If required by the Trustees, the Advisor will maintain a fidelity
bond with a responsible surety company in such amounts as may be required by the
Trustees, covering all directors, officers, employees and agents of the Advisor
handling funds of the Trust and investment documents or records pertaining to
investments of the Trust. Such bonds shall inure to the benefit of the Trust in
respect of losses from acts of
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such directors, officers, employees and agents through theft, embezzlement,
fraud, negligence, error or omission or otherwise. The premiums on such bond
shall be paid by the Trust.
8. INFORMATION FURNISHED TO THE ADVISOR.
(a) The Trustees shall, at all times, keep the Advisor fully
informed with regard to the investment policy of the Trust, including any
specific types of Mortgages or investments desired, the desired geographical
areas of investments, and any criteria or conditions established by the Trustees
as to whether the Trust will make a particular investment, the capitalization
policy of the Trust (including the policy with regard to the incurrence of
indebtedness by the Trust) and their intentions as to the future operations of
the Trust. In particular, the Trustees shall notify the Advisor promptly of
their intention to sell or otherwise dispose of any of the Trust's investments,
to make any new investment, to incur any indebtedness or to issue any additional
Shares in the Trust.
(b) The Trust shall furnish the Advisor with a copy of all financial
statements of the Trust, a signed copy of each report prepared by the
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.
9. 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 of the Trust, furnish advice and recommendations with respect to other
aspects of the business and affairs of the Trust.
10. DEFINITIONS. To the extent not defined below, capitalized terms used
herein will have the meaning given to them in the Prospectus. As used herein,
the following terms shall have the meanings set forth below:
(a) "ACCOUNTANTS" means Coopers & βββββββ�, Boston Massachusetts, a
successor thereto, or another firm of independent certified public
accountants selected by the Trustees.
(b) "ACQUISITION EXPENSES" means expenses (other than the
Acquisition Fee) incurred by the Trust relating to selection and
acquisition of Mortgages, whether or not acquired, including the
fees and expenses of lawyers, appraisers, engineers, architects and
accountants, Affiliate costs, travel and communications expenses,
costs of appraisals, non-refundable option payments on Mortgages not
acquired, and accounting fees and expenses, but not fees and
commissions paid by any Person to any Person in connection with the
selection or purchase of any Mortgage by the Trust, whether
designated as a real estate commission, acquisition fee, finder's
fee, selection fee, non-recurring management fee, consulting fee or
any fee of similar nature however designated and however treated for
tax or accounting purposes, and not any loan fees ("points").
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(c) "ACQUISITION FEE" means a fee payable to the Advisor or its
Affiliates equal to 2.5% of the gross proceeds of the offering for
services rendered in connection with the origination or acquisition
of mortgages by the Trust. In the event any other fee or commission
is incurred by any party, whether designated as a real estate
commission, acquisition fee, finder's fee, selection fee,
non-recurring management fee, consulting fee or any fee of similar
nature however designated and however treated for tax or accounting
purposes (excluding Origination Fees), it shall be paid by the
Advisor or its Affiliates out of the Acquisition Fee.
(d) "ADVISOR" means βββββ� Mortgage Advisors Limited Partnership or
any other person or entity which succeeds it in such capacity.
(e) "AFFILIATE" means, when used with reference to a specified
Person, (i) any Person that directly or indirectly through one or
more intermediaries controls or is controlled by or is under common
control with the specified Person, (ii) any Person that is officer
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, partner or trustee, or with respect to which the
specified Person serves in a similar capacity, and (iii) any Person
that, directly or indirectly, is the beneficial owner of 10% or more
of any class of voting securities of the specified Person or of
which the specified Person is directly or indirectly the owner of
10% or more of any class of equity securities or in which the
specified Person has a substantial beneficial interest. A person who
is a partner in a partnership or joint venture with the Trust shall
not be deemed an Affiliate of the Trust if such Person is not
otherwise an Affiliate of the Trust as defined in the preceding
sentence. Notwithstanding the above, "AFFILIATE" for the purpose of
the indemnification provisions shall include only those persons
performing services on behalf of the Trust.
(f) "ASSET MANAGEMENT FEE" means the asset management fee payable to
the Advisor under the provisions of this Agreement.
(g) "AVERAGE INVESTED ASSETS" means the average of the aggregate
book value of the assets of the Trust for any period invested,
directly or indirectly, in Mortgages, before expenses for
depreciation or bad debts or similar incurred expenses, computed by
taking the average of such values at the end of each month during
such period.
(h) "CASH FROM DISPOSITION OF MORTGAGES" means the cash received by
the Trust as a result of a Repayment or Sale, including any
Preferred Return Interest and Shared Appreciation Interest but
excluding any other interest, less (i) all costs, expenses, debts
and liabilities of the Trust required to be paid as a result of the
repayment or sale and (ii) any reserves for contingent liabilities
to the extent deemed reasonable by the Trust provided that, at the
expiration of such period as the Trust shall
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deem advisable, the balance of such reserves shall be included in
Cash from Disposition of Mortgages.
(i) "CUMULATIVE RETURN ON INVESTED CAPITAL" means a percentage
return equal to eleven and one-half percent (11.5%) per annum on
Invested Capital calculated from the respective dates on which the
sale of Shares to the Shareholders occur through the most recent
fiscal year completed prior to the transaction giving rise to the
computation. In calculating whether the Cumulative Return on
Invested Capital has been satisfied, only distributions by the Trust
of cash will be considered.
(j) "DECLARATION OF TRUST" means the declaration of trust filed by
the Trustees in connection with the formation of the Trust, as
amended and/or amended and restated from time to time.
(k) "DIVIDEND" means a dividend paid by the Trust from any source
(including mortgage interest payments, amortization, mortgage
prepayments and, in the case of PIMs and PIMIS, cash flow and
appreciation participation interests) in respect of the Shares. A
Dividend may include a return of capital to the Shareholders and/or
a payment of ordinary income, capital gain or items of tax
preference.
(l) "FHA" means the Federal Housing Administration.
(m) "FHLMC" means the Federal Home Loan Mortgage Corporation.
(n) "FNMA" means the Federal National Mortgage Association.
(o) "GNMA" means the Government National Mortgage Association.
(p) "INDEPENDENT TRUSTEES" means the Trustees who: (i) are not
affiliated, directly or indirectly, with the Advisor, whether by
ownership of, ownership interest in, employment by, any material
business or professional relationship with, or services as an
officer or director of, the Advisor or its Affiliates; (ii) do not
serve as a director or trustee for more than two other REITs
organized by the Sponsor; and (iii) perform no other services for
the Trust, except as Trustees. For this purpose, an indirect
relationship shall include circumstances in which an immediate
family member of a Trustee has one of the foregoing relationships
with the Advisor or the Trust.
(q) "INVESTED CAPITAL" means $20.00 per share less all
Dividends which constitute: (i) proceeds from the Repayment or
Sale of Mortgages; or (ii) Shared Appreciation Interest.
(r) "MBS" means guaranteed mortgage-backed securities issued or
originated under or in connection with the housing programs of GNMA,
FNMA, or FHLMC.
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(s) "MORTGAGE" means collectively PIMIs (Insured Mortgages and
Additional Loans), PIMs, Single-Family MBS, Multi-Family MBS,
Operating Loans and Other Mortgages which, under the REIT Provisions
of the Code, would be considered to be qualifying real estate assets
for the purposes of the Trust's qualification as a REIT.
(t) "ORGANIZATIONAL AND OFFERING EXPENSES" means those expenses
incurred in connection with and in preparing the Trust for
registration under the federal and state securities laws and
subsequently offering and distributing the Shares to the public
including certain marketing expenses and all advertising expenses
but not sales commissions, the Participation Servicing Fee or the
Advisor's sales incentives paid to broker-dealers in connection with
the distribution of the Shares.
(u) "ORIGINAL INVESTMENT" means $20.00 per Share.
(v) "PARTICIPATION SERVICING FEE" means a fee paid to the Advisor or
an Affiliate equal to 1.5% of the gross proceeds of the offering,
prepaid for the servicing of the participation features of the PIMIs
and PIMs, including, but not limited to, servicing the monthly
receipt of Minimum Additional Interest and Shared Income Interest as
well as realization of Shared Appreciation Interest and Preferred
Return Interest and other activities related to realizing the
Trust's participation interest.
(w) "PERSON" means any individual, partnership, corporation, trust,
governmental body or agency, or other entity of any type.
(x) "PROPERTY MANAGEMENT FEE" means a fee paid to the Advisor or its
Affiliates by the Trust in the event of a default on a Mortgage and
subsequent foreclosure on the underlying property or receipt of deed
in lieu of such foreclosure, if the Advisor or its Affiliates
perform property management services with respect to such property.
The fee shall be in an amount customarily charged in arm's-length
transactions by other firms rendering comparable services for
comparable properties in the localities where such properties are
located, but in no event to exceed 5% of the gross receipts from
residential properties under management (including all rent-up,
leasing and re-leasing fees and bonuses, and leasing related
services, paid to any Person, except for locator services performed
by non-Affiliates in certain geographic areas where such locator
services are not customarily included in property management
services). Such fees shall include any fees paid to any other person
for property management services with respect to the properties
under management by the Trust or its Affiliates.
(y) "PROSPECTUS" means the Prospectus of the Trust used in
connection with its public offering of Shares, as supplemented or
amended.
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(z) "REAL ESTATE BROKERAGE FEE" means a fee paid to the Advisor or
its Affiliates in the event that the Trust forecloses on a property
securing a Mortgage and sells such property. Such fee shall be
reasonable, customary and competitive, taking into consideration the
size, type and location of the property provided, however, such fees
shall be paid only if the Advisor or its Affiliates perform a
substantial amount of services in the sales effort, in which case
such fees shall not exceed the lesser of (i) a percentage of the
gross sales price of a property equal to one-half of the brokerage
commission or (ii) three percent (3%) of the gross sales price of
such property.
(aa) "REIT" means a real estate investment trust described in
sections 856 through 860 of the Code (the "REIT Provisions").
(bb) "REPAYMENT OR SALE" means the repayment of principal or
prepayment of a Mortgage to the extent classified as a return of
capital for federal income tax purposes, the exercise by the Trust
of its Repayment Rights, and the sale, exchange or other disposition
of a Mortgage.
(cc) "SHAREHOLDERS" means holders of Shares.
(dd) "SHARES" means the shares of beneficial interest, without par
value, of the Trust.
(ee) "SUBORDINATED INCENTIVE FEE" means a fee paid to the Advisor or
an Affiliate equal to 4% of Cash from Disposition of Mortgages,
payable only if all Shareholders have received an aggregate return
equal to their Invested Capital and a Cumulative Return on Invested
Capital equal to 11.5% on an annual non-compounded basis. In no
event will the Subordinated Incentive Fee exceed an amount equal to
15% of Cash from Disposition of Mortgages remaining after payment to
the Shareholders of an amount equal to the sum of (i) 100% of their
Original Investments, and (ii) an annual cumulative return of 6% on
such original Investements less all prior distributions of Cash from
Disposition of Mortgages.
(ff) "TOTAL OPERATING EXPENSES" means all operating, general, and
administrative expenses of the Trust including the fee in the event
of termination of the Advisor as determined by generally accepted
accounting principles exclusive of the expenses of raising capital,
interest payments, taxes, non-cash expenditures (i.e., depreciation,
amortization, bad debt reserve), the Subordinated Incentive Fee, and
other costs related directly to a specific Mortgage investment by
the Trust, such as expenses for originating, acquiring, servicing or
disposing of a Mortgage.
(gg) "TRUSTEES" means any trustees of the Trust.
11. ASSET MANAGEMENT FEE. The Trust shall pay to the Advisor as partial
compensation for the services rendered to the Trust hereunder an Asset
Management Fee
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equal to 0.75% of the Average Invested Assets of the Trust, per annum, payable
quarterly, beginning in the twenty-fifth month after the date of the Prospectus.
12. OTHER FEES OF THE ADVISOR.
(a) The Trust shall pay to the Advisor an Acquisition Fee for
services rendered in connection with the acquisition of Mortgages in an amount
equal to 2.5% of the gross proceeds of the public offering of the Trust. The
Advisor and its Affiliates will be reimbursed on an accountable basis for
Acquisition Expenses incurred up to 0.5% of the gross proceeds of the offering
and will receive a non-accountable Acquisition Expense allowance of 1.5% of the
gross proceeds of the offering. Acquisition Expenses in excess of 2% of the
gross proceeds of the offering will be paid by the Advisor or Affiliates.
(b) The Trust shall pay to the Advisor or its Affiliates a
Participation Servicing Fee equal to 1.5% of the gross proceeds of the offering,
prepaid for the servicing of the participation features of the PIMs and PIMIs,
including, but not limited to, servicing the monthly receipt of Minimum
Additional Interest and Shared Income Interest as well as realization of Shared
Appreciation Interest and Preferred Return Interest and other activities related
to realizing the Trust's participation interest.
(c) The Trust shall pay to the Advisor a Subordinated Incentive Fee
equal to 4% of the Cash from Disposition of Mortgages; the payment of which fee
being subordinated to the prior payment to Shareholders of an aggregate return
equal to their Invested Capital plus an amount which equals an 11.5% per annum
Cumulative Return on Invested Capital on a non-compounded basis. Once the
Shareholders have received their Cumulative Return on Invested Capital, the Cash
from Disposition of Mortgages shall be paid 100% to the Advisor or an Affiliate
as a fee until it has received an amount equal to 4% of the Cash from
Disposition of Mortgages, after which such cash shall be paid 96% as a Dividend
to Shareholders and 4% as a fee to the Advisor or its Affiliates. In no event
will the Subordinated Incentive Fee exceed an amount equal to 15% of Cash from
Disposition of Mortgages remaining after payment to the Shareholders of an
amount equal to the sum of (i) 100% of their Original Investments, and (ii) an
annual cumulative return of 6% on such Original Investments less all prior
distributions of Cash from Disposition of Mortgages.
(d) The Trust may pay to the Advisor or its Affiliates a Real Estate
Brokerage Fee in the event the Trust forecloses on a property securing a
Mortgage and sells such property. Such fee shall be reasonable, customary and
competitive, taking into consideration the size, type and location of the
property provided, however, such fees shall be paid only if the Advisor or its
Affiliates perform a substantial amount of services in the sales effort, in
which case such fees shall not exceed the lesser of (i) one-half of the
brokerage commission paid or (ii) three percent (3%) of the gross sales price of
such property.
13. COMPENSATION FOR ADDITIONAL SERVICES. In the event of a default on a
Mortgage and subsequent foreclosure on the underlying property or a deed in lieu
of such
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foreclosure, the Advisor or its Affiliates may perform property management
services with respect to the properties underlying the Mortgages. In such event,
the Trust may pay a Property Management Fee equal to an amount customarily
charged in arm's-length transactions by other firms rendering comparable
services for comparable properties in the localities where such properties are
located, but in no event to exceed 5% of the gross receipts from residential
properties under management (including all rent-up, leasing and re-leasing fees
and bonuses, and leasing related services, paid to any Person, except for
locator services performed by non-Affiliates in certain geographic areas where
such locator services are not customarily included in property management
services). Such fees shall include any fees paid to any other Person for
property management services with respect to the properties under management by
the Trust or its Affiliates.
14. STATEMENTS. Prior to the payment of any fees hereunder, the Advisor
shall furnish to the Trust a statement showing the computation of the fees, if
any, payable under Sections 11, 12 and 13 hereof.
15. EXPENSES OF THE TRUST.
(a) The Trust shall pay all of its expenses. Without limiting the
foregoing, it is specifically agreed that the following expenses of the Trust
shall be paid by the Trust and shall not be paid by the Advisor:
(i) the cost of money borrowed by the Trust;
(ii) taxes on income and taxes and assessments on real
property and all other taxes applicable to the Trust;
(iii) fees and expenses paid to independent contractors,
mortgage servicers, consultants, managers and other agents employed by or on
behalf of the Trust;
(iv) expenses directly connected with the acquisition,
ownership, and disposition of investments, or other property and with the
purchase of Mortgages (including the costs of foreclosure, insurance premiums,
legal services, brokerage and sales commissions, maintenance, repair and
improvement of property);
(v) expenses of maintaining and managing real estate equity
interests, processing and servicing mortgage and other loans and managing the
Trust's other investments;
(vi) insurance coverage in connection with the business of the
Trust (including, to the extent permitted under the Declaration of Trust,
officers' and Trustees' liability insurance);
(vii) the expenses of revising, amending, converting,
modifying or terminating the Trust or revising, amending or modifying its
organizational documents;
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(viii) expenses connected with payments of Dividends or
interests or distributions in cash or any other form made or caused to be made
by the Trustees to Shareholders;
(ix) all expenses connected with communications to
Shareholders and other bookkeeping and clerical work necessary in maintaining
relations with the Shareholders, including the cost of printing and mailing
share certificates, proxy solicitation materials and reports to Shareholders;
(x) the cost of any accounting, statistical or
bookkeeping equipment necessary for the maintenance of the books and records
of the Trust;
(xi) transfer agent's and registrar's fees and charges; and
(xii) other legal, accounting and auditing fees and expenses
as well as any costs incurred in connection with any other litigation in which
the Trust is involved and in the examination, investigation or other proceedings
conducted by any regulatory agency with respect to the Trust.
(b) The Trust shall reimburse the Advisor and its Affiliates for:
(i) the actual costs to the Advisor or its Affiliates of goods, materials and
services used for and by the Trust obtained from unaffiliated parties; (ii)
administrative services necessary to the operation of the Trust; (iii) the cost
of certain personnel employed by the Trust and directly involved in the
organization and business of the Trust including persons who may be employees or
officers of the Advisor and its Affiliates; and (iv) for legal, accounting,
transfer agent, data processing, duplicating and investor communications
services performed by employees or officers of the Advisor and its Affiliates
which could be performed directly for the Trust by independent parties. The
amounts charged to the Trust for services performed pursuant to clause (ii)
above will not exceed the lesser of: (a) the actual cost of such services; or
(b) the amount which the Trust would be required to pay to independent parties
for comparable services. No reimbursement will be allowed to the Advisor or its
Affiliates for services performed pursuant to clause (ii) above unless the
Advisor or its Affiliates have the appropriate experience and expertise to
perform such services.
(c) The Trust will reimburse the Advisor for any travel expenses
incurred in connection with the services provided hereunder and for advertising
expenses incurred by it in seeking any investments or seeking the disposition of
any investments held by the Trust.
16. LIMITATION ON EXPENSES, REFUND AND COMPENSATION.
(a) The annual Total Operating Expenses of the Trust may not exceed
in any fiscal year the greater of: (1) 2% of the Average Invested Assets of the
Trust during such fiscal year; or (2) 25% of the Trust's Net Income during such
fiscal year. The Independent Trustees have a fiduciary responsibility to limit
the Trust's annual Total Operating Expenses to amounts that do not exceed the
limitations described above. The
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Independent Trustees may, however, determine that a higher level of Total
Operating Expenses is justified for a given fiscal year because of unusual or
non-recurring expenses.
Within 60 days after the end of any fiscal quarter of the Trust for which
Total Operating Expenses (for the 12 months then ended) exceeded both 2% of the
Average Invested Assets of the Trust and 25% of the Trust's Net Income, there
shall be sent to Shareholders a written disclosure of such fact. If the
Independent Trustees determine that such higher Total Operating Expenses are
justified, such disclosure will also contain an explanation of the Independent
Trustees conclusion. In the event the Independent Trustees do not determine that
such excess expenses are justified, the Advisor shall reimburse the Trust for
the excess amount within 60 days after the end of the Trust's fiscal year.
(b) The Declaration of Trust provides that the Independent Trustees
are to determine at least annually that the amount of compensation which the
Trust contracts to pay the Advisor is reasonable in relation to the nature and
quality of the services performed, based on the factors set forth in the
Declaration of Trust and such other factors as they deem relevant, including the
size of the fee in relation to size, composition and profitability of the
portfolio of the Trust, the success of the Advisor in generating opportunities
that meet the investment objectives of the Trust, the rates charged to other
REITs and to investors other than REITs by advisors performing similar services,
the amount of additional revenues realized by the Advisor and its Affiliates for
other services performed for the Trust, the quality and extent of service and
advice furnished by the Advisor, the performance of the investment portfolio of
the Trust and the quality of the portfolio of the Trust in relationship to the
investments generated by the Advisor for its own account.
17. OTHER ACTIVITIES OF ADVISOR. Nothing in this Agreement shall prevent
the Advisor or any of its officers, directors or employees or any of its
Affiliates from engaging in other business activities related to real estate,
mortgage investments or other investments whether similar or dissimilar to those
made by the Trust or from acting as advisor to any other person or entity having
investment policies whether similar or dissimilar to those of the Trust
(including another real estate investment trust).
18. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in force
for a period of one year from the date of the commencement of the offering.
Thereafter, it may be renewed annually, subject to an evaluation of the
performance of the Advisor by the Trustees. Notice of renewal shall be given in
writing by the Trust to the Advisor not less than 60 days before the expiration
of this Agreement or of any extension thereof.
This Agreement shall be terminable (i) without cause by the Advisor or
(ii) without cause by a majority of the Independent Trustees, each without
penalty, and each upon 60 days' prior written notice to the non-terminating
party.
In the event of the termination of the Advisor, the Advisor will cooperate
with the Trust and take all reasonable steps requested to assist the Trustees in
making an orderly transition of the advisory function.
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19. AMENDMENTS. This Agreement shall not be changed, modified, terminated
or discharged in whole or in part except by an instrument in writing signed by
both parties hereto, or their respective successors or assigns, or otherwise as
provided herein.
20. ASSIGNMENT. This Agreement may not be assigned by the Advisor, without
the written consent of the Trust, except to a corporation or other person which
controls, is controlled by, or is under common control with the Advisor, or a
corporation, association, trust or other successor organization which may take
over the property and carry on the affairs of the Advisor. Any assignee of the
Advisor shall be bound hereunder to the same extent as the Advisor. This
Agreement shall not be assigned by the Trust without the written consent of the
Advisor, except to a corporation, association, trust or other organization which
is a successor to the Trust. Such successor shall be bound hereunder to the same
extent as the Trust. Notwithstanding anything to the contrary contained herein,
the economic rights and obligations of the Advisor hereunder, including the
right to receive all compensation hereunder, may be sold, transferred or
assigned by the Advisor without the consent of the Trust.
21. ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Section 18 hereof, the Advisor shall
not be entitled to compensation for further service rendered hereunder but shall
be paid all compensation and reimbursed for all expenses accrued through the
date of termination, including a fee in the event of termination and a
proportionate share of any Subordinated Incentive Fee which may be payable
pursuant to Section 12(c) as a result of any subsequent maturing, disposition,
financing or retirement of an investment by the Trust based upon the portion of
the total period that the investment was held by the Trust that the Advisor
served as investment advisor. The Advisor shall forthwith upon such termination:
(a) pay over to the Trust all moneys collected and held for the
account of the Trust pursuant to this Agreement, after deducting any accrued
compensation and reimbursement for its expenses to which it is then entitled;
(b) deliver to the Trust a full accounting, including a statement
showing all payments collected by it and a statement of all moneys held by it,
covering the period following the date of the last accounting furnished to the
Trust; and
(c) deliver to the Trust all property and documents of the
Trust then in the custody of the Advisor.
In consideration for its forgoing the Asset Management Fee for the initial
two years of the operation of the Trust, if, within the first two years of the
operation of the Trust, βββββ� Mortgage Advisors Limited Partnership is
terminated as Advisor without cause, βββββ� Mortgage Advisors Limited Partnership
shall receive a fee equal to the amount of the Asset Management Fee which would
have been paid during the period βββββ� Mortgage Advisors Limited Partnership
served as Advisor, had the Asset Management Fee not been forgone during such
period. If within the third through fifth years of the operation of the Trust,
βββββ� Mortgage Advisors Limited Partnership is
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terminated as Advisor without cause, βββββ� Mortgage Advisors Limited Partnership
shall receive the Asset Management Fee which would have been paid during the
first two years of the Trust's operations had the Asset Management Fee not been
forgone during such period. After the fifth year of the operation of the Trust,
no fee in regard to termination shall be paid on termination without cause of
βββββ� Mortgage Advisors Limited Partnership as Advisor. As used in this
provision, "cause" shall mean any violation by βββββ� Mortgage Advisors Limited
Partnership of the terms of the Advisory Services Agreement or determination by
a majority of the Trustees, including a majority of the Independent Trustees,
that the performance of βββββ� Mortgage Advisors Limited Partnership as Advisor
under the Advisory Services Agreement has been unsatisfactory. The Trust shall
pay βββββ� Mortgage Advisors Limited Partnership any amount required to be paid
pursuant to this provision by delivery of a promissory note payable over three
years in level annual installments with interest at the then prime rate of
Chemical Bank, N.A. plus one percent.
22. INCORPORATION OF THE DECLARATION OF TRUST. To the extent the
Declaration of Trust imposes obligations or restrictions on the Advisor or
grants the Advisor certain rights which are not set forth in this Agreement, the
Advisor shall abide by such obligations or restrictions and such rights shall
inure to the benefit of the Advisor with the same force and effect as if they
were set forth herein.
23. MISCELLANEOUS. The Advisor assumes no responsibility under this
Agreement other than to render the services called for hereunder in good faith,
and shall not be responsible for any action of the Trust in following or
declining to follow any advice or recommendations of the Advisor. Neither the
Advisor, its shareholders, directors, officers nor employees shall be liable to
the Trust, the Shareholders or to any successor or assignee of the Trust, except
by reason of acts constituting negligence or misconduct, as long as the course
of conduct was determined in good faith to be in the best interests of the
Trust. The Advisor hereby agrees to look solely to the assets of the Trust for
satisfaction of all claims against the Trust, and in no event shall any
Shareholder, Trustee, officer or agent of the Trust have any personal liability
for the obligations of the Trust under this Agreement.
24. NOTICES. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing, and shall be given by
delivering such notice by hand or by certified mail, return receipt requested,
postage prepaid, at the following address of the parties hereto:
βββββ� Government Income Trust
βββ� ββββββββ ββββββ
ββββββ, βββββββββββββ� βββββ�
βββββ� Mortgage Advisors Limited Partnership
βββ� ββββββββ ββββββ
ββββββ, βββββββββββββ� βββββ�
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Either party may at any time change its address for the purpose of this
Section 24 by like notice.
25. 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.
26. GOVERNING LAW. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of The Commonwealth of Massachusetts
as at the time in effect.
IN WITNESS WHEREOF, the undersigned have caused this agreement to be
signed as of the day and year first above written.
βββββ� GOVERNMENT INCOME TRUST
By: /s/ ββββββββ ββββββ
---------------------------------------
Name: ββββββββ ββββββ
Title: President
βββββ� MORTGAGE ADVISORS LIMITED
PARTNERSHIP
By: KMI corporation, its general partner
By: /s/ ββββββββ ββββββ
---------------------------------------
Name: ββββββββ ββββββ
Title: Chairman
15