Exhibit 10.2

 

 

MANAGEMENT AGREEMENT

by and between

American Capital Agency Corp.

and

American Capital Agency Management, LLC

Dated as of May 20, 2008

 

 

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MANAGEMENT AGREEMENT, dated as of May 20, 2008, by and between American Capital
Agency Corp., a Delaware corporation (the “Company”) and American Capital Agency
Management, LLC, a Delaware limited liability company (the “Manager”), a
subsidiary of a wholly-owned portfolio company of American Capital Strategies,
Ltd., a Delaware corporation (“American Capital”).

W I T N E S S E T H:

WHEREAS, the Company is a newly formed corporation which intends to invest
exclusively in single-family residential mortgage pass-through securities and
collateralized mortgage obligations for which the principal and interest
payments, if applicable, are guaranteed by (i) a U.S. Government agency such as
the Government National Mortgage Association, or (ii) a U.S.
Government-sponsored entity such as the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation (collectively, “Agency
Securities”) and intends to qualify as a real estate investment trust for
federal income tax purposes and will elect to receive the tax benefits accorded
by Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the “Code”); and

WHEREAS, the Company desires to retain the Manager to administer the business
activities and day-to-day operations of the Company and to perform services for
the Company in the manner and on the terms set forth herein and the Manager
wishes to be retained to provide such services.

NOW THEREFORE, in consideration of the premises and agreements hereinafter set
forth, the parties hereto hereby agree as follows:

Section 1. Definitions.

(a) The following terms shall have the meanings set forth in this Section 1(a):

“Administrative Services Agreement” means an agreement between the Manager and
American Capital whereby American Capital agrees to provide the Manager with the
personnel, services and resources necessary for the Manager to perform its
obligations and responsibilities under this Agreement in exchange for certain
fees payable by the Manager.

“Affiliate” means (i) any Person directly or indirectly controlling, controlled
by, or under common control with such other Person, (ii) any executive officer,
general partner or employee of such other Person, (iii) any member of the board
of directors or board of managers (or bodies performing similar functions) of
such Person, and (iv) any legal entity for which such Person acts as an
executive officer or general partner.

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“Agency Securities” has the meaning set forth in the Recitals.

“Agreement” means this Management Agreement, as amended, supplemented or
otherwise modified from time to time.

“American Capital” has the meaning set forth in the Recitals.

“Automatic Renewal Term” has the meaning set forth in Section 10(b) hereof.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day except a Saturday, a Sunday or a day on which
banking institutions in New York, New York are not required to be open.

“Claim” has the meaning set forth in Section 8(c) hereof.

“Closing Date” means the date of closing of the Initial Public Offering.

“Code” has the meaning set forth in the Recitals.

“Common Stock” means the common stock, par value $0.01, of the Company.

“Company” has the meaning set forth in the Recitals.

“Company Indemnified Party” has meaning set forth in Section 8(b) hereof.

“Company Permitted Disclosure Parties” has the meaning set forth in Section 5(b)
hereof.

“Conduct Policies” has the meaning set forth in Section 2(k) hereof.

“Confidential Information” has the meaning set forth in Section 5 hereof.

“Effective Termination Date” has the meaning set forth in Section 10(c) hereof.

 

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“Equity” means the Company’s month-end stockholders’ equity, adjusted to exclude
the effect of any unrealized gains or losses included in either retained
earnings or other comprehensive income (loss), each computed in accordance with
GAAP.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“GAAP” means generally accepted accounting principles in effect in the United
States on the date such principles are applied.

“Governing Instruments” means, with regard to any entity, the articles of
incorporation or certificate of incorporation and bylaws in the case of a
corporation, the partnership agreement in the case of a general or limited
partnership or the certificate of formation and operating agreement in the case
of a limited liability company, the trust instrument in the case of a trust, or
similar governing documents in each case as amended.

“Indemnified Party” has the meaning set forth in Section 8(b) hereof.

“Independent Director” means a member of the Board of Directors who is
“independent” in accordance with the Company’s Governing Instruments and the
rules of Nasdaq or such other securities exchange on which the shares of Common
Stock are listed.

“Initial Public Offering” means the Company’s sale of Common Stock to the public
through underwriting pursuant to the Company’s Registration Statement on Form
S-11 (No. 333-149167).

“Investment Committee” means the investment committee formed by the Manager, the
members of which shall consist of officers of American Capital, the Manager
and/or American Capital’s other Affiliates.

“Initial Term” has the meaning set forth in Section 10(a) hereof.

“Investment Company Act” means the Investment Company Act of 1940, as amended.

“Investment Guidelines” means the investment guidelines proposed by the
Investment Committee and approved by the Board of Directors, a copy of which is
attached hereto as Exhibit A, as the same may amended, restated, modified,
supplemented or waived by the Investment Committee, subject to the consent of a
majority of the entire Board of Directors (which must include a majority of the
then incumbent Independent Directors).

 

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“Losses” has the meaning set forth in Section 8(a) hereof.

“Management Fee” means the management fee, calculated and payable monthly in
arrears, in an amount equal to one-twelfth of 1.25% of Equity.

“Manager” has the meaning set forth in the Recitals.

“Manager Indemnified Party” has the meaning set forth in Section 8(a) hereof.

“Manager Permitted Disclosure Parties” has the meaning set forth in Section 5(a)
hereof.

“Nasdaq” means The NASDAQ Stock Market, Inc.

“Notice of Proposal to Negotiate” has the meaning set forth in Section 10(d)
hereof.

“Person” means any natural person, corporation, partnership, association,
limited liability company, estate, trust, joint venture, any federal, state,
county or municipal government or any bureau, department or agency thereof or
any other legal entity and any fiduciary acting in such capacity on behalf of
the foregoing.

“REIT” means a “real estate investment trust” as defined under the Code.

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Subsidiary” means any subsidiary of the Company and any partnership, the
general partner of which is the Company or any subsidiary of the Company, and
any limited liability company, the managing member of which is the Company or
any subsidiary of the Company.

 

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“Termination Fee” means a termination fee equal to three (3) times the average
annual Management Fee earned by the Manager during the 24-month period
immediately preceding the most recently completed calendar quarter prior to the
Effective Termination Date.

“Termination Notice” has the meaning set forth in Section 10(c) hereof.

“Termination Without Cause” has the meaning set forth in Section 10(c) hereof.

(b) As used herein, accounting terms relating to the Company and its
Subsidiaries, if any, not defined in Section 1(a) and accounting terms partly
defined in Section 1(a), to the extent not defined, shall have the respective
meanings given to them under United States generally accepted accounting
principles. As used herein, “calendar quarters” shall mean the period from
January 1 to March 31, April 1 to June 30, July 1 to September 30 and October 1
to December 31 of the applicable year.

(c) The words “hereof,” “herein” and “hereunder” and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and Section references are to this
Agreement unless otherwise specified.

(d) The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms. The words include, includes
and including shall be deemed to be followed by the phrase “without limitation.”

Section 2. Appointment and Duties of the Manager.

(a) The Company hereby appoints the Manager to manage the investments and
day-to-day operations of the Company and its Subsidiaries, subject at all times
to the further terms and conditions set forth in this Agreement and to the
supervision of, and such further limitations or parameters as may be imposed
from time to time by, the Board of Directors. The Manager hereby agrees to use
its commercially reasonable efforts to perform each of the duties set forth
herein, provided that funds are made available by the Company for such purposes
as set forth in Section 7 hereof. The appointment of the Manager shall be
exclusive to the Manager, except to the extent that the Manager elects, in its
sole and absolute discretion, in accordance with the terms of this Agreement, to
cause the duties of the Manager as set forth herein to be provided by third
parties.

(b) The Manager, in its capacity as manager of the investments and the
operations of the Company, at all times will be subject to the supervision and
direction of the Board of Directors and will have only such functions and
authority as the Board of Directors

 

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may delegate to it, including, without limitation, the functions and authority
identified herein and delegated to the Manager hereby. The Manager will be
responsible for the day-to-day operations of the Company and will perform (or
cause to be performed) such services and activities relating to the investments
and operations of the Company as may be appropriate, which may include, without
limitation:

(i) forming and maintaining the Investment Committee, which will have the
following responsibilities: (A) proposing the Investment Guidelines to the Board
of Directors, (B) reviewing the Company’s investment portfolio for compliance
with the Investment Guidelines on a monthly basis, (C) reviewing the Investment
Guidelines adopted by the Board of Directors on a periodic basis, (D) reviewing
the diversification of the Company’s investment portfolio and the Company’s
hedging and financing strategies on a monthly basis, and (E) generally be
responsible for conducting or overseeing the provision of the services set forth
in this Section 2.

(ii) serving as the Company’s consultant with respect to the periodic review of
the investments, borrowings and operations of the Company and other policies and
recommendations with respect thereto, including, without limitation, the
Investment Guidelines, in each case subject to the approval of the Board of
Directors;

(iii) serving as the Company’s consultant with respect to the selection,
purchase, monitoring and disposition of the Company’s investments;

(iv) serving as the Company’s consultant with respect to decisions regarding any
financings, hedging activities or borrowings undertaken by the Company or its
Subsidiaries, including (1) assisting the Company in developing criteria for
debt and equity financing that is specifically tailored to the Company’s
investment objectives, and (2) advising the Company with respect to obtaining
appropriate financing for its investments;

(v) advising the Company with respect to incentive plans that the Company may
establish for the Independent Directors;

(vi) purchasing and financing investments on behalf of the Company;

(vii) providing the Company with portfolio management;

(viii) engaging and supervising, on behalf of the Company and at the Company’s
expense, independent contractors that provide real estate, investment banking,
securities brokerage, insurance, legal, accounting, transfer agent, registrar
and such other services as may be required relating to the Company’s operations
or investments (or potential investments);

 

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(ix) providing executive and administrative personnel, office space and office
services required in rendering services to the Company;

(x) performing and supervising the performance of administrative functions
necessary in the management of the Company as may be agreed upon by the Manager
and the Board of Directors, including, without limitation, the services in
respect of any equity incentive plan the Company may establish for the
Independent Directors, the collection of revenues and the payment of the
Company’s debts and obligations and maintenance of appropriate information
technology services to perform such administrative functions;

(xi) communicating on behalf of the Company with the holders of any equity or
debt securities of the Company as required to satisfy the reporting and other
requirements of any governmental bodies or agencies or trading exchanges or
markets and to maintain effective relations with such holders, including website
maintenance, logo design, analyst presentations, investor conferences and annual
meeting arrangements;

(xii) counseling the Company in connection with policy decisions to be made by
the Board of Directors;

(xiii) evaluating and recommending to the Company hedging strategies and
engaging in hedging activities on behalf of the Company, consistent with such
strategies, as so modified from time to time, with the Company’s qualification
as a REIT and with the Investment Guidelines;

(xiv) counseling the Company regarding the maintenance of its qualification as a
REIT and monitoring compliance with the various REIT qualification tests and
other rules set out in the Code and U.S. Treasury regulations promulgated
thereunder;

(xv) counseling the Company regarding the maintenance of its exemption from
status as an investment company under the Investment Company Act and monitoring
compliance with the requirements for maintaining such exemption;

(xvi) furnishing reports and statistical and economic research to the Company
regarding the activities and services performed for the Company or its
Subsidiaries, if any, by the Manager;

 

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(xvii) monitoring the operating performance of the Company’s investments and
providing periodic reports with respect thereto to the Board of Directors,
including comparative information with respect to such operating performance and
budgeted or projected operating results;

(xviii) investing and re-investing any monies and securities of the Company
(including in short-term investments, payment of fees, costs and expenses, or
payments of dividends or distributions to stockholders and partners of the
Company) and advising the Company as to its capital structure and
capital-raising activities;

(xix) causing the Company to retain qualified accountants and legal counsel, as
applicable, to (i) assist in developing appropriate accounting procedures,
compliance procedures and testing systems with respect to financial reporting
obligations and compliance with the provisions of the Code applicable to REITs
and, if applicable, taxable REIT subsidiaries and (ii) conduct quarterly
compliance reviews with respect thereto;

(xx) causing the Company to qualify to do business in all jurisdictions in which
such qualification is required and to obtain and maintain all appropriate
licenses;

(xxi) assisting the Company in complying with all regulatory requirements
applicable to the Company in respect of its business activities, including
preparing or causing to be prepared all financial statements required under
applicable regulations and contractual undertakings and all reports and
documents, if any, required under the Exchange Act or the Securities Act;

(xxii) taking all necessary actions to enable the Company and any Subsidiaries
to make required tax filings and reports, including soliciting stockholders for
required information to the extent necessary under the Code and U.S. Treasury
regulations applicable to REITs;

(xxiii) handling and resolving all claims, disputes or controversies (including
all litigation, arbitration, settlement or other proceedings or negotiations) in
which the Company may be involved or to which the Company may be subject arising
out of the Company’s day-to-day operations;

(xxiv) arranging marketing materials, advertising, industry group activities
(such as conference participations and industry organization memberships) and
other promotional efforts designed to promote the business of the Company;

 

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(xxv) using commercially reasonable efforts to cause expenses incurred by or on
behalf of the Company to be commercially reasonable or commercially customary
and within any budgeted parameters or expense guidelines set by the Board of
Directors from time to time;

(xxvi) performing such other services as may be required from time to time for
the management and other activities relating to the assets of the Company as the
Board of Directors shall reasonably request or the Manager shall deem
appropriate under the particular circumstances; and

(xxvii) using commercially reasonable efforts to cause the Company to comply
with all applicable laws.

(c) The Manager may retain, for and on behalf, and at the sole cost and expense,
of the Company, such services of the persons and firms referred to in
Section 7(b) hereof as the Manager deems necessary or advisable in connection
with the management and operations of the Company. In performing its duties
under this Section 2, the Manager shall be entitled to rely reasonably on
qualified experts and professionals (including, without limitation, accountants,
legal counsel and other professional service providers) hired by the Manager at
the Company’s sole cost and expense.

(d) The Manager shall refrain from any action that, in its sole judgment made in
good faith, (i) is not in compliance with the Investment Guidelines, (ii) would
adversely affect the qualification of the Company as a REIT under the Code or
the Company’s status as an entity excluded from investment company status under
the Investment Company Act, or (iii) would violate any law, rule or regulation
of any governmental body or agency having jurisdiction over the Company or of
any exchange on which the securities of the Company may be listed or that would
otherwise not be permitted by the Company’s Governing Instruments. If the
Manager is ordered to take any action by the Board of Directors, the Manager
shall promptly notify the Board of Directors if it is the Manager’s judgment
that such action would adversely affect such status or violate any such law,
rule or regulation or the Governing Instruments. Notwithstanding the foregoing,
neither the Manager nor any of its Affiliates (including American Capital) shall
be liable to the Company, the Board of Directors, or the Company’s stockholders
for any act or omission by the Manager or any of its Affiliates, except as
provided in Section 8 of this Agreement.

(e) The Company (including the Board of Directors) agrees to take all actions
reasonably required to permit and enable the Manager to carry out its duties and
obligations under this Agreement, including, without limitation, all steps
reasonably necessary to allow the Manager to file any registration statement or
other filing required to be made under the Securities Act, Exchange Act, Nasdaq,
Code or other applicable law, rule or regulation on behalf of the Company in a
timely manner. The Company further agrees to use commercially reasonable efforts
to make available to the Manager all resources, information and materials

 

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reasonably requested by the Manager to enable the Manager to satisfy its
obligations hereunder, including its obligations to deliver financial statements
and any other information or reports with respect to the Company. If the Manager
is not able to provide a service, or in the reasonable judgment of the Manager
it is not prudent to provide a service, without the approval of the Board of
Directors, as applicable, then the Manager shall be excused from providing such
service (and shall not be in breach of this Agreement) until the applicable
approval has been obtained.

(f) Reporting Requirements. (i) As frequently as the Manager may deem reasonably
necessary or advisable, or at the direction of the Board of Directors, the
Manager shall prepare, or, at the sole cost and expense of the Company, cause to
be prepared, with respect to any investment, reports and other information with
respect to such investment as may be reasonably requested by the Company.

(ii) The Manager shall prepare, or, at the sole cost and expense of the Company,
cause to be prepared, all reports, financial or otherwise, with respect to the
Company reasonably required by the Board of Directors in order for the Company
to comply with its Governing Instruments, or any other materials required to be
filed with any governmental body or agency, and shall prepare, or, at the sole
cost and expense of the Company, cause to be prepared, all materials and data
necessary to complete such reports and other materials including, without
limitation, an annual audit of the Company’s books of account by a nationally
recognized independent accounting firm.

(iii) The Manager shall prepare, or, at the sole cost and expense to the
Company, cause to be prepared, regular reports for the Board of Directors to
enable the Board of Directors to review the Company’s acquisitions, portfolio
composition and characteristics, credit quality, performance and compliance with
the Investment Guidelines and policies approved by the Board of Directors.

(g) Directors, officers, employees and agents of the Manager, American Capital
or their respective Affiliates may serve as directors, officers, agents,
nominees or signatories for the Company or any of its Subsidiaries, to the
extent permitted by their Governing Instruments and pursuant to the
Administrative Services Agreement, as from time to time amended, by any
resolutions duly adopted by the Board of Directors. When executing documents or
otherwise acting in such capacities for the Company or any of its Subsidiaries,
such Persons shall indicate in what capacity they are executing on behalf of the
Company or any of its Subsidiaries. Without limiting the foregoing, but subject
to Section 12 below, the Manager will provide the Company with a management
team, including a Chief Executive Officer, Chief Financial Officer and Chief
Investment Officer or similar positions, along with appropriate support
personnel to provide the management services to be provided by the Manager to
the Company hereunder, who shall devote such of their time to the management of
the Company as necessary and appropriate, commensurate with the level of
activity of the Company from time to time.

 

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(h) The Manager shall provide personnel for service on the Investment Committee.

(i) The Manager shall maintain reasonable and customary “errors and omissions”
insurance coverage and other customary insurance coverage.

(j) The Manager shall provide such internal audit, compliance and control
services as may be required for the Company to comply with applicable law
(including the Securities Act and Exchange Act), regulation (including SEC
regulations) and the rules and requirements of Nasdaq and as otherwise
reasonably requested by the Company or its Board of Directors from time to time.

(k) The Manager acknowledges receipt of the Company’s Code of Business Conduct
and Ethics and Policy on Insider Trading and Communications Policy
(collectively, the “Conduct Policies”) and agrees to require the persons who
provide services to the Company to comply with such Conduct Policies in the
performance of such services hereunder or such comparable policies as shall in
substance hold such persons to at least the standards of conduct set forth in
the Conduct Policies.

Section 3. Additional Activities of the Manager; Non-Solicitation; Restrictions.

(a) Except as provided, the last sentence of this Section 3(a) and/or the
Investment Guidelines, nothing in this Agreement shall (i) prevent the Manager
or any of its Affiliates, officers, directors or employees, from engaging in
other businesses or from rendering services of any kind to any other Person or
entity, whether or not the investment objectives or policies of any such other
Person or entity are similar to those of the Company or (ii) in any way bind or
restrict the Manager or any of its Affiliates, officers, directors or employees
from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom the Manager or any of its
Affiliates, officers, directors or employees may be acting. While information
and recommendations supplied to the Company shall, in the Manager’s reasonable
and good faith judgment, be appropriate under the circumstances and in light of
the investment objectives and policies of the Company, they may be different
from the information and recommendations supplied by the Manager or any
Affiliate of the Manager to others. The Company shall be entitled to equitable
treatment under the circumstances in receiving information, recommendations and
any other services, but the Company recognizes that it is not entitled to
receive preferential treatment as compared with the treatment given by the
Manager or any Affiliate of the Manager to others. The Company shall have the
benefit of the Manager’s best judgment and effort in rendering services
hereunder and, in furtherance of the foregoing, the Manager shall not undertake
activities that, in its good faith judgment, will adversely affect the
performance of its obligations under this Agreement.

 

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(b) In the event of a Termination Without Cause of this Agreement by the Company
pursuant to Section 10(c) hereof, the Company shall not, without the consent of
the Manager, employ or otherwise retain any employee of the Manager or any of
its Affiliates (including American Capital) or any person who has been in the
employ of the Manager or any of its Affiliates at any time within the two
(2) year period immediately preceding the date on which such person commences
employment with or is otherwise retained by the Company for two (2) years after
such termination of this Agreement. The Company acknowledges and agrees that, in
addition to any damages the Manager shall be entitled to equitable relief for
any violation of this agreement by the Company, including, without limitation,
injunctive relief.

Section 4. 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, 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.

Section 5. Records; Confidentiality.

(a) The Manager shall maintain appropriate books of accounts 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 at any time during normal business hours. The Manager shall keep
confidential any and all non-public information, written or oral, obtained by it
in connection with the services rendered hereunder (“Confidential Information”)
and shall not use Confidential Information except in furtherance of its duties
under this Agreement or disclose Confidential Information, in whole or in part,
to any Person other than (i) to its Affiliates, officers, directors, employees,
agents, representatives or advisors who need to know such Confidential
Information for the purpose of rendering services hereunder, (ii) to appraisers,
financing sources and others in the ordinary course of the Company’s business
((i) and (ii) collectively, “Manager Permitted Disclosure Parties”), (iii) in
connection with any governmental or regulatory filings of the Company or
disclosure or presentations to Company investors, (iv) to governmental officials
having jurisdiction over the Company, (v) as requested by law or legal process
to which the Manager or any Person to whom disclosure is permitted hereunder is
a party, or (vi) with the consent of the Company. The Manager agrees to inform
each of its Manager Permitted Disclosure Parties of the non-public nature of the
Confidential Information and to direct such Persons to treat such Confidential
Information in accordance with the terms hereof. Nothing herein shall prevent
the Manager from disclosing Confidential Information (i) upon the order of any
court or administrative agency, (ii) upon the request or demand of, or pursuant
to any law or regulation, any regulatory agency or authority, (iii) to the
extent reasonably required in connection with the exercise of any remedy
hereunder, or (iv) to its legal counsel or independent auditors; provided,
however that with respect to clauses (i) and (ii), it is agreed that, so long as
not legally prohibited, the Manager will provide the Company with prompt written
notice of such order, request or demand so that the Company may seek, at its
sole expense, an appropriate protective order and/or waive the Manager’s
compliance with the provisions of this Agreement. If, failing the entry of a
protective order or the receipt of a waiver

 

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hereunder, the Manager is required to disclose Confidential Information, the
Manager may disclose only that portion of such information that is legally
required without liability hereunder; provided, that the Manager agrees to
exercise its reasonable best efforts to obtain reliable assurance that
confidential treatment will be accorded such information. Notwithstanding
anything herein to the contrary, each of the following shall be deemed to be
excluded from provisions hereof: any Confidential Information that (A) is
available to the public from a source other than the Manager, (B) is released in
writing by the Company to the public or to persons who are not under similar
obligation of confidentiality to the Company, or (C) is obtained by the Manager
from a third-party which, to the best of the Manager’s knowledge, does not
constitute a breach by such third-party of an obligation of confidence with
respect to the Confidential Information disclosed. The provisions of this
Agreement shall survive the expiration or earlier termination of this Agreement
for a period of one year.

(b) The Company shall keep confidential any and all Confidential Information and
shall not use Confidential Information except in furtherance of the terms of
this Agreement or disclose Confidential Information, in whole or in part, to any
Person other than (i) to its Affiliates, officers or directors who need to know
such Confidential Information for the purpose of fulfilling the Company’s
obligations hereunder (collectively, “Company Permitted Disclosure Parties”),
(ii) as requested by law or legal process to which the Company or any Person to
whom disclosure is permitted hereunder is a party, or (iii) with the consent of
the Manager. The Company agrees to (i) inform each of its Company Permitted
Disclosure Parties of the non-public nature of the Confidential Information and
to direct such Persons to treat such Confidential Information in accordance with
the terms hereof and (ii) not disclose any Confidential Information to its
Company Permitted Disclosure Parties upon the expiration or nonrenewal of this
Agreement in accordance with Section 10. Nothing herein shall prevent the
Company from disclosing Confidential Information (i) upon the order of any court
or administrative agency, (ii) upon the request or demand of, or pursuant to any
law or regulation, any regulatory agency or authority, (iii) to the extent
reasonably required in connection with the exercise of any remedy hereunder, or
(iv) to its legal counsel or independent auditors; provided, however that with
respect to clauses (i) and (ii), it is agreed that, so long as not legally
prohibited, the Company will provide the Manager with prompt written notice of
such order, request or demand so that the Manager may seek, at its sole expense,
an appropriate protective order and/or waive the Company’s compliance with the
provisions of this Agreement. If, failing the entry of a protective order or the
receipt of a waiver hereunder, the Company is required to disclose Confidential
Information, the Company may disclose only that portion of such information that
is legally required without liability hereunder; provided, that the Company
agrees to exercise its reasonable best efforts to obtain reliable assurance that
confidential treatment will be accorded such information. Notwithstanding
anything herein to the contrary, each of the following shall be deemed to be
excluded from provisions hereof: any Confidential Information that (A) is
available to the public from a source other than the Company, (B) is released in
writing by the Manager to the public or to persons who are not under similar
obligation of confidentiality to the Manager, or (C) is obtained by the Company
from a third-party which, to the best of the Company’s knowledge, does not
constitute breach by such third-party of an obligation of confidence with
respect to the Confidential Information disclosed. For the avoidance of doubt,
information about the systems, employees, policies, procedures and investment
portfolio (other than investments in which the Company and Manager have
co-invested) shall be deemed to be included within the meaning of “Confidential
Information” for purposes of the Company’s obligations pursuant to this Section
5(b).

 

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Section 6. Compensation.

(a) For the services rendered under this Agreement, the Company shall pay the
Management Fee to the Manager. The Manager will not receive any compensation for
the period prior to the Closing Date other than expenses incurred and reimbursed
pursuant to Section 7 hereof.

(b) The parties acknowledge that the Management Fee is intended to compensate
the Manager for the costs and expenses it will incur pursuant to the
Administrative Services Agreement, as well as certain expenses not otherwise
reimbursable under Section 7 below, in order for the Manager to provide the
Company the investment advisory services and certain general management services
rendered under this Agreement.

(c) The Management Fee shall be payable in arrears in cash, in monthly
installments commencing with the month in which this Agreement is executed. If
applicable, the initial and final installments of the Management Fee shall be
pro-rated based on the number of days during the initial and final month,
respectively, that this Agreement is in effect. The Manager shall calculate each
monthly installment of the Management Fee, and deliver such calculation to the
Company, within fifteen (15) days following the last day of each calendar month.
The Company shall pay the Manager each installment of the Management Fee within
five (5) Business Days after the date of delivery to the Company of such
computations.

Section 7. Expenses of the Company.

(a) The Manager shall be responsible for the expenses related to any and all
personnel of the Manager and its Affiliates who provide services to the Company
pursuant to this Agreement or to the Manager pursuant to the Administrative
Services Agreement (including each of the officers of the Company and any
directors of the Company who are also directors, officers, employees or agents
of the Manager, American Capital or any of their Affiliates), including, without
limitation, salaries, bonus and other wages, payroll taxes and the cost of
employee benefit plans of such personnel, and costs of insurance with respect to
such personnel.

(b) The Company shall pay all of its costs and expenses and shall reimburse the
Manager or its Affiliates for expenses of the Manager and its Affiliates
incurred on behalf of the Company, excepting only those expenses that are
specifically the responsibility of the Manager pursuant to Section 7(a) of this
Agreement. Without limiting the generality of the foregoing, it is specifically
agreed that the following costs and expenses of the Company or any Subsidiary
shall be paid by the Company and shall not be paid by the Manager or Affiliates
of the Manager:

(i) all costs and expenses associated with the formation and capital raising
activities of the Company and its Subsidiaries, if any, including, without
limitation, the costs and expenses of (A) the preparation of the Company’s
registration statements, (B) the initial public offering of the Company, (C) the
original incorporation and initial organization of the Company, and (D) any
subsequent offerings and any filing fees and costs of being a public company,
including, without limitation, filings with the SEC, the Financial Industry
Regulatory Authority, Inc. and Nasdaq (and any other exchange or
over-the-counter market), among other such entities;

 

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(ii) all costs and expenses in connection with the acquisition, disposition,
financing, hedging and ownership of the Company’s or any Subsidiary’s
investments, including, without limitation, costs and expenses incurred in
contracting with third parties to provide such services, such as legal fees,
accounting fees, consulting fees, trustee fees, appraisal fees, insurance
premiums, commitment fees, brokerage fees and guaranty fees;

(iii) all legal, audit, accounting, consulting, brokerage, listing, filing,
custodian, transfer agent, rating agency, registration and other fees and
charges, printing, engraving and other expenses and taxes incurred in connection
with the issuance, distribution, transfer, registration and stock exchange
listing of the Company’s or any Subsidiary’s equity securities or debt
securities;

(iv) all expenses relating to communications to holders of equity securities or
debt securities issued by the Company or any Subsidiary and other third party
services utilized 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 SEC),
including any costs of computer services in connection with this function, the
cost of printing and mailing certificates for such securities and proxy
solicitation materials and reports to holders of the Company’s or any
Subsidiary’s securities and the cost of any reports to third parties required
under any indenture to which the Company or any Subsidiary is a party;

(v) all costs and expenses of money borrowed by the Company or its Subsidiaries,
if any, including, without limitation, principal, interest and the costs
associated with the establishment and maintenance of any credit facilities,
warehouse loans, repurchase facilities and other indebtedness of the Company and
its Subsidiaries, if any (including commitment fees, legal fees, closing and
other costs);

(vi) all taxes and license fees applicable to the Company or any Subsidiary,
including interest and penalties thereon;

 

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(vii) all fees paid to and expenses of third-party advisors and independent
contractors, consultants, managers and other agents engaged by the Company or
any Subsidiary or by the Manager for the account of the Company or any
Subsidiary;

(viii) all insurance costs incurred by the Company or any Subsidiary, including,
without limitation, the cost of obtaining and maintaining (A) liability or other
insurance to indemnify (1) the Manager, (2) the directors and officers of the
Company, and (3) underwriters of any securities of the Company, (B) “errors and
omissions” insurance coverage, and (C) any other insurance deemed necessary or
advisable by the Board of Directors for the benefit of the Company and its
directors and officers;

(ix) all compensation and fees paid to directors of the Company or any
Subsidiary (excluding those directors who are also directors, officers,
employees or agents of American Capital or any of its Affiliates), and all
expenses of all directors of the Company or any Subsidiary incurred in their
capacity as such;

(x) all third-party legal, accounting and auditing fees and expenses and other
similar services relating to the Company’s or any Subsidiary’s operations
(including, without limitation, all quarterly and annual audit or tax fees and
expenses);

(xi) all third-party legal, expert and other fees and expenses relating to any
actions, proceedings, lawsuits, demands, causes of action and claims, whether
actual or threatened, made by or against the Company, or which the Company is
authorized or obligated to pay under applicable law or its Governing Instruments
or by the Board of Directors;

(xii) subject to Section 8 below, any judgment or settlement of pending or
threatened proceedings (whether civil, criminal or otherwise) against the
Company or any Subsidiary, or against any trustee, director or officer of the
Company or any Subsidiary in his capacity as such for which the Company or any
Subsidiary is required to indemnify such trustee, director or officer by any
court or governmental agency, or settlement of pending or threatened
proceedings;

(xiii) all travel and related expenses of directors, officers and employees of
the Company and the Manager, incurred in connection with attending meetings of
the Board of Directors or holders of securities of the Company or any Subsidiary
or performing other business activities that relate to the Company or any
Subsidiary, including, without limitations, travel and related expenses incurred
in connection with the purchase, consideration for purchase, financing,
refinancing, sale or other disposition of any investment or potential investment
of the Company; provided, however, that the Company shall only be responsible
for a proportionate share of such expenses, as determined by the Manager in good
faith, where such expenses were not incurred solely for the benefit of the
Company;

 

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(xiv) all expenses of organizing, modifying or dissolving the Company or any
Subsidiary and costs preparatory to entering into a business or activity, or of
winding up or disposing of a business activity of the Company or its
Subsidiaries, if any;

(xv) all expenses relating to 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
or on account of holders of the securities of the Company or any Subsidiary,
including, without limitation, in connection with any dividend reinvestment
plan;

(xvi) all costs and expenses related to (A) the design and maintenance of the
Company’s web site or sites and (B) the Company’s pro rata share of any computer
software, hardware or information technology services that is used by the
Company;

(xvii) all costs and expenses incurred with respect to market information
systems and publications, research publications and materials, and settlement,
clearing and custodial fees and expenses; provided, however, that the Company
shall only be responsible for a proportionate share of such expenses, as
determined by the Manager in good faith, where such expenses were not incurred
solely for the benefit of the Company;

(xviii) all costs and expenses incurred with respect to administering the
Company’s incentive plans;

(xix) rent (including disaster recovery facilities costs and expenses),
telephone, utilities, office furniture, equipment, machinery and other office,
internal and overhead expenses of the Manager and its Affiliates required for
the Company’s operations; provided, however, that the Company shall only be
responsible for a proportionate share of such expenses, as determined by the
Manager in good faith, where such expenses were not incurred solely for the
benefit of the Company; and

(xx) all other expenses actually incurred by the Manager or its Affiliates or
their respective officers, employees, representatives or agents, or any
Affiliates thereof, which are reasonably necessary for the performance by the
Manager of its duties and functions under this Agreement (including, without
limitation, any fees or expenses relating to the Company’s compliance with all
governmental and regulatory matters).

(c) Costs and expenses incurred by the Manager on behalf of the Company shall be
reimbursed monthly to the Manager. The Manager shall prepare a written statement
in reasonable detail documenting the costs and expenses of the Company and those

 

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incurred by the Manager on behalf of the Company during each month, and shall
deliver such written statement to the Company within thirty (30) days after the
end of each month. The Company shall pay all amounts payable to the Manager
pursuant to this Section 7(c) within five (5) Business Days after the receipt of
the written statement without demand, deduction, offset or delay. Cost and
expense reimbursement to the Manager shall be subject to adjustment at the end
of each calendar year in connection with the annual audit of the Company. The
provisions of this Section 7 shall survive the expiration or earlier termination
of this Agreement to the extent such expenses has previously been incurred or
are incurred in connection with such expiration or termination.

Section 8. Limits of the Manager’s Responsibility.

(a) The Manager 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 Board of Directors in following or declining
to follow any advice or recommendations of the Manager, including as set forth
in the Investment Guidelines. The Manager and its Affiliates, and the directors,
officers, employees and stockholders of the Manager and its Affiliates, will not
be liable to the Company, any Subsidiary of the Company, the Board of Directors,
or the Company’s stockholders for any acts or omissions by the Manager, its
officers, employees or its Affiliates, performed in accordance with and pursuant
to this Agreement, except by reason of acts constituting bad faith, willful
misconduct, gross negligence or reckless disregard of their respective duties
under this Agreement. The Company shall, to the full extent lawful, reimburse,
indemnify and hold harmless the Manager, its Affiliates, and the directors,
officers, employees and stockholders of the Manager and its Affiliates (each, a
“Manager Indemnified Party”), of and from any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever, (including
reasonable attorneys’ fees) (collectively “Losses”) in respect of or arising
from any acts or omissions of such Manager Indemnified Party performed in good
faith under this Agreement and, in respect of any such Manager Indemnified
Party, not constituting bad faith, willful misconduct, gross negligence or
reckless disregard of duties of such Manager Indemnified Party under this
Agreement.

(b) The Manager shall, to the full extent lawful, reimburse, indemnify and hold
harmless the Company, and the directors, officers and stockholders of the
Company and each Person, if any, controlling the Company (each, a “Company
Indemnified Party”; a Manager Indemnified Party and a Company Indemnified Party
are each sometimes hereinafter referred to as an “Indemnified Party”) of and
from any and all Losses in respect of or arising from (i) any acts or omissions
of the Manager constituting bad faith, willful misconduct, gross negligence or
reckless disregard of duties of the Manager under this Agreement or (ii) any
claims by the Manager’s employees relating to the terms and conditions of their
employment by the Manager.

(c) In case any such claim, suit, action or proceeding (a “Claim”) is brought
against any Indemnified Party in respect of which indemnification may be sought
by such Indemnified Party pursuant hereto, the Indemnified Party shall give
prompt written notice thereof to the indemnifying party, which notice shall
include all documents and information in

 

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the possession of or under the control of such Indemnified Party reasonably
necessary for the evaluation and/or defense of such Claim and shall specifically
state that indemnification for such Claim is being sought under this Section;
provided, however, that the failure of the Indemnified Party to so notify the
indemnifying party shall not limit or affect such Indemnified Party’s rights to
be indemnified pursuant to this Section. Upon receipt of such notice of Claim
(together with such documents and information from such Indemnified Party), the
indemnifying party shall, at its sole cost and expense, in good faith defend any
such Claim with counsel reasonably satisfactory to such Indemnified Party, which
counsel may, without limiting the rights of such Indemnified Party pursuant to
the next succeeding sentence of this Section, also represent the indemnifying
party in such investigation, action or proceeding. In the alternative, such
Indemnified Party may elect to conduct the defense of the Claim, if (i) such
Indemnified Party reasonably determines that the conduct of its defense by the
indemnifying party could be materially prejudicial to its interests, (ii) the
indemnifying party refuses to defend (or fails to give written notice to the
Indemnified Party within ten (10) days of receipt of a notice of Claim that the
indemnifying party assumes such defense), or (iii) the indemnifying party shall
have failed, in such Indemnified Party’s reasonable judgment, to defend the
Claim in good faith. The indemnifying party may settle any Claim against such
Indemnified Party without such Indemnified Party’s consent, provided (i) such
settlement is without any Losses whatsoever to such Indemnified Party, (ii) the
settlement does not include or require any admission of liability or culpability
by such Indemnified Party and (iii) the indemnifying party obtains an effective
written release of liability for such Indemnified Party from the party to the
Claim with whom such settlement is being made, which release must be reasonably
acceptable to such Indemnified Party, and a dismissal with prejudice with
respect to all claims made by the party against such Indemnified Party in
connection with such Claim. The applicable Indemnified Party shall reasonably
cooperate with the indemnifying party, at the indemnifying party’s sole cost and
expense, in connection with the defense or settlement of any Claim in accordance
with the terms hereof. If such Indemnified Party is entitled pursuant to this
Section to elect to defend such Claim by counsel of its own choosing and so
elects, then the indemnifying party shall be responsible for any good faith
settlement of such Claim entered into by such Indemnified Party. Except as
provided in the immediately preceding sentence, no Indemnified Party may pay or
settle any Claim and seek reimbursement therefor under this Section.

(d) The provisions of this Section 8 shall survive the expiration or earlier
termination of this Agreement.

Section 9. 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 10. Term; Renewal.

(a) Initial Term. This Agreement shall become effective on the Closing Date and
shall continue in operation, unless terminated in accordance with the terms
hereof, until —, 2011 (the “Initial Term”).

 

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(b) Automatic Renewal Terms. After the Initial Term, this Agreement shall be
deemed renewed automatically each year for an additional one-year period (an
“Automatic Renewal Term”) unless the Company or the Manager elects not to renew
this Agreement in accordance with Section 10(c) of this Agreement.

(c) Nonrenewal of this Agreement Without Cause. Notwithstanding any other
provision of this Agreement to the contrary, upon the expiration of the Initial
Term and upon 180 days’ prior written notice to the Manager or the Company (the
“Termination Notice”), either the Company (but only with the approval of a
majority of the Independent Directors) or the Manager may, without cause, in
connection with the expiration of the Initial Term or any Automatic Renewal
Term, decline to renew this Agreement (any such nonrenewal, a “Termination
Without Cause”). If the Company issues the Termination Notice, the Company shall
be obligated to (i) specify the reason for nonrenewal in the Termination Notice
and (ii) pay the Manager the Termination Fee before or on the last day of the
Initial Term or Automatic Renewal Term (the “Effective Termination Date”). In
the event of a Termination Without Cause, nonrenewal of this Agreement shall be
without any further liability or obligation of either party to the other, except
as provided in Section 3(b), Section 8 and Section 14 of this Agreement. The
Manager shall cooperate with the Company in executing an orderly transition of
the management of the Company’s assets to a new manager. The Company may
terminate this Agreement for cause pursuant to Section 12 hereof even after a
Termination Without Cause and, in such case, no Termination Fee shall be
payable.

(d) Unfair Manager Compensation. Notwithstanding the provisions of subsection
(c) above, if the reason for nonrenewal specified in the Company’s Termination
Notice is that a majority of the Independent Directors have determined that the
Management Fee payable to the Manager is unfair, the Company shall not have the
foregoing nonrenewal right in the event the Manager agrees that it will continue
to perform its duties hereunder during the Automatic Renewal Term that would
commence upon the expiration of the Initial Term or then current Automatic
Renewal Term at a fee that the majority of the Independent Directors determine
to be fair; provided, however, the Manager shall have the right to renegotiate
the Management Fee by delivering to the Company, not less than 120 days prior to
the pending Effective Termination Date, written notice (a “Notice of Proposal to
Negotiate”) of its intention to renegotiate the Management Fee. Thereupon, the
Company and the Manager shall endeavor to negotiate the Management Fee in good
faith. Provided that the Company and the Manager agree to a revised Management
Fee or other compensation structure within sixty (60) days following the
Company’s receipt of the Notice of Proposal to Negotiate, the Termination Notice
from the Company shall be deemed of no force and effect, and this Agreement
shall continue in full force and effect on the terms stated herein, except that
the Management Fee or other compensation structure shall be the revised
Management Fee or other compensation structure then agreed upon by the Company
and the Manager. The Company and the Manager agree to execute and deliver an
amendment to this Agreement setting forth such revised Management Fee or other
compensation structure promptly upon reaching an agreement regarding same. In
the event that the Company and the Manager are unable to agree to a revised
Management Fee or other compensation structure during such sixty (60) day
period, this Agreement shall terminate on the Effective Termination Date and the
Company shall be obligated to pay the Manager the Termination Fee upon the
Effective Termination Date.

 

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Section 11. Assignments.

(a) Assignments by the Manager. This Agreement shall terminate automatically
without payment of the Termination Fee 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 Independent Directors. Any
such permitted assignment shall bind the assignee under this Agreement in the
same manner as the Manager is bound, and the Manager shall be liable to the
Company for all errors or omissions of the assignee under any such assignment.
In addition, the assignee shall execute and deliver to the Company a counterpart
of this Agreement naming such assignee as the Manager. Notwithstanding the
foregoing, the Manager may (i) assign this Agreement to an Affiliate of the
Manager that is a successor to the Manager by reason of a restructuring or other
internal reorganization among the Manager and any one or more of its Affiliates
without the consent of the majority of the Independent Directors and
(ii) delegate to one or more of its Affiliates the performance of any of its
responsibilities hereunder so long as it remains liable for any such Affiliate’s
performance. Nothing contained in this Agreement shall preclude any pledge,
hypothecation or other transfer of any amounts payable to the Manager under this
Agreement.

(b) Assignments by the Company. This Agreement shall terminate automatically in
the event of its assignment, in whole or in part, by the Company, unless such
assignment is consented to in writing by the Manager. Any such permitted
assignment shall bind the assignee under this Agreement in the same manner as
the Company is bound. In addition, the assignee shall execute and deliver to the
Manager a counterpart of this Agreement.

Section 12. Termination of the Manager for Cause. At the option of the Company
and at any time during the term of this Agreement, this Agreement shall be and
become terminated upon 60 days’ written notice of termination from the Board of
Directors to the Manager, without payment of the Termination Fee, if any of the
following events shall occur, which shall be determined by a majority of the
Independent Directors:

(a) the Manager shall commit any act of fraud, misappropriation of funds, or
embezzlement against the Company or shall be grossly negligent in the
performance of its duties under this Agreement (including such action or
inaction by the Manager which materially impairs the Company’s ability to
conduct its business);

(b) the Manager shall fail to provide adequate or appropriate personnel
necessary for the Manager to originate investment opportunities for the Company
and to manage and develop the Company’s portfolio; provided, that such default
has continued uncured for a period of sixty (60) days after written notice
thereof, which notice shall contain a request that the same be remedied;

 

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(c) the Manager shall commit a material breach of any provision of this
Agreement (including the failure of the Manager to use reasonable efforts to
comply with the Investment Guidelines); provided, that such default has
continued uncured for a period of sixty (60) days after written notice thereof,
which notice shall contain a request that the same be remedied;

(d) (A) the Manager shall commence any case, proceeding or other action
(1) under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (2) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or any
substantial part of its assets, or the Manager shall make a general assignment
for the benefit of its creditors; or (B) there shall be commenced against the
Manager any case, proceeding or other action of a nature referred to in clause
(A) above which (1) results in the entry of an order for relief or any such
adjudication or appointment or (2) remains undismissed, undischarged or unbonded
for a period of 90 days; or (C) the Manager shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (A) or (B) above; or (D) the Manager shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or

(e) upon the dissolution of the Manager.

If any of the events specified above shall occur, the Manager shall give prompt
written notice thereof to the Board of Directors.

Section 13. Action Upon Termination. From and after the effective date of
termination of this Agreement pursuant to Sections 10, 11, or 12 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 and, if terminated or not renewed pursuant to Section 10, the
Termination Fee. Upon any such termination, the Manager shall forthwith:

(a) after deducting any accrued compensation and reimbursement for its expenses
to which it is then entitled, pay over to the Company or a Subsidiary all money
collected and held for the account of the Company or a Subsidiary pursuant to
this Agreement;

(b) 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 accounting furnished to the
Board of Directors with respect to the Company and any Subsidiaries; and

 

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(c) deliver to the Board of Directors all property and documents of the Company
and any Subsidiaries then in the custody of the Manager.

Section 14. Release of Money or Other Property Upon Written Request.

The Manager agrees that any money or other property of the Company (which such
term, for the purposes of this Section, shall be deemed to include any and all
of its Subsidiaries, if any) held by the Manager shall be held by the Manager as
custodian for the Company, and the Manager’s records shall be appropriately and
clearly marked to reflect the ownership of such money or other property by the
Company. 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 any money or other property then held by the Manager for the account of
the Company under this Agreement, the Manager shall release such money or other
property to the Company within a reasonable period of time, but in no event
later than 60 days following such request. Upon delivery of such money or other
property to the Company, the Manager shall not be liable to the Company, the
Board of Directors, or the Company’s stockholders or partners for any acts or
omissions by the Company in connection with the money or other property released
to the Company in accordance with this Section. The Company shall indemnify the
Manager, its directors, officers, stockholders, employees and agents 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 in accordance with the terms of this
Section 14. Indemnification pursuant to this provision shall be in addition to
any right of the Manager to indemnification under Section 8 of this Agreement.

Section 15. Representations and Warranties.

(a) The Company hereby represents and warrants to the Manager as follows:

(i) The Company is duly organized, validly existing and in good standing under
the laws of the State of Delaware, has the corporate power and authority and the
legal right to own and operate its assets, to lease any property it may operate
as lessee and to conduct 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.

(ii) The Company has the corporate power and authority and the legal right to
make, deliver and perform this Agreement and all obligations required hereunder
and has taken all necessary corporate action to authorize this Agreement on the
terms and conditions hereof and the execution, delivery and performance of this
Agreement and all

 

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obligations required hereunder. No consent of any other Person, including
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, if any, taken as a whole, and
will not result in, or require, the creation or imposition of any lien or 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, has the limited liability company power and
authority and the legal right to own and operate its assets, to lease the
property it operates as lessee and to conduct 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 Manager.

(ii) The Manager has the limited liability company power and authority and the
legal right to make, deliver and perform this Agreement and all obligations
required hereunder and has taken all necessary corporate action to authorize
this Agreement on the terms and conditions hereof and the execution, delivery
and performance of this Agreement and all obligations required hereunder. No
consent of any other Person, including members and creditors of the Manager, and
no license, permit, approval or

 

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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 officer 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, and will not result in, or require, the creation or
imposition of any lien or 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 16. Miscellaneous.

(a) Notices. All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by telecopy), and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made when delivered against receipt or upon actual receipt of (i) personal
delivery, (ii) delivery by reputable overnight courier, (iii) delivery by
facsimile transmission with telephonic confirmation or (iv) delivery by
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below (or to such other address as may be hereafter
notified by the respective parties hereto in accordance with this Section 16):

 

The Company:     

American Capital Agency Corp.

2 Bethesda Metro Center, 14th Floor

Bethesda, MD 20814

Attention: Chief Financial Officer

Fax: 301-968-9301

with a copy to:     

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

Attention: David J. Goldschmidt, Esq.

Fax: (212) 735-2000

 

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The Manager:     

American Capital Agency Management, LLC

c/o American Capital Strategies, Ltd.

2 Bethesda Metro Center, 14th Floor

Bethesda, MD 20814

Attention: Chief Financial Officer

Fax: 301-951-5651

with a copy to:     

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, New York 10036

Attention: David J. Goldschmidt, Esq.

Fax: (212) 735-2000

(b) 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.

(c) Integration. This Agreement contains the entire agreement and understanding
among the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements, understandings, inducements
and conditions, express or implied, oral or written, of any nature whatsoever
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.

(d) Amendments. This Agreement, nor any terms hereof, may not be amended,
supplemented or modified except in an instrument in writing executed by the
parties hereto.

(e) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT FOR ANY DISTRICT WITHIN SUCH STATE FOR THE PURPOSE OF ANY
ACTION OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY AND TO THE LAYING OF VENUE IN SUCH COURT.

(f) WAIVER OF JURY TRIAL. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH SUCH PARTY HEREBY
IRREVOCABLY AND

 

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UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY
OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

(g) Survival of Representations and Warranties. All representations and
warranties made hereunder, and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement.

(h) No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of a party hereto, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.

(i) 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 matter incident thereto.

(j) Section Headings. The section and subsection headings in this Agreement are
for convenience in reference only and shall not be deemed to alter or affect the
interpretation of any provisions hereof.

(k) Counterparts. This Agreement may be executed by the parties to this
Agreement on any number of separate counterparts (including by telecopy), and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.

(l) Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, each of the parties hereto have executed this Management
Agreement as of the date first written above.

 

American Capital Agency Corp. By:  

/s/ Samuel A. Flax

Name:   Samuel A. Flax Title:   Executive Vice President and Secretary American
Capital Agency Management, LLC By:  

/s/ Samuel A. Flax

Name:   Samuel A. Flax Title:   Vice President and Secretary

 

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Exhibit A

Investment Guidelines

Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in that certain Management Agreement, dated as of May     , 2008, as may
be amended from time to time (the “Management Agreement”), by and between
American Capital Agency Corp. (the “Company”) and American Capital Agency
Management, LLC (the “Manager”).

1. The Company shall not make any investments other than investments in Agency
Securities.

2. The Company’s leverage may not exceed 10 times its stockholders’ equity (as
computed in accordance with GAAP) (the “Leverage Threshold.”) In the event that
the Company’s leverage inadvertently exceeds the Leverage Threshold, the Company
may not utilize additional leverage without prior approval from the Board of
Directors until the Company is once again in compliance with the Leverage
Threshold.

3. No investment shall be made that would cause the Company to fail to qualify
as a REIT under the Code.

4. No investment shall be made that would cause the Company to be regulated as
an investment company under the Investment Company Act.

5. A majority of the Independent Directors must approve any transaction between
the Company and/or any of its subsidiaries on the one hand and the Manager
and/or any of its Affiliates (including, but not limited to American Capital) on
the other hand.

These Investment Guidelines may be amended, restated, modified, supplemented or
waived by the Board of Directors (which must include a majority of the
Independent Directors) without the approval of the Company’s stockholders.