Exhibit 10.4

 

THIRD AMENDED AND RESTATED
MANAGEMENT AND ADVISORY AGREEMENT

 

THIS THIRD AMENDED AND RESTATED MANAGEMENT AND ADVISORY AGREEMENT is made as of
July 14, 2016 (the “Agreement”) by and among ARBOR REALTY TRUST, INC., a
Maryland corporation (“Parent REIT”), ARBOR REALTY LIMITED PARTNERSHIP, a
Delaware limited partnership (“Operating Partnership”), ARBOR REALTY SR, INC., a
Maryland corporation (“Sub-REIT” and together with the Parent REIT and the
Operating Partnership, the “Company”), and ARBOR COMMERCIAL MORTGAGE, LLC, a New
York limited liability company (together with its permitted assigns, “Manager”).

 

W I T N E S S E T H :

 

WHEREAS, Parent REIT, Manager and the Operating Partnership have entered into
the Management and Advisory Agreement, dated as of July 1, 2003 (the “Original
Management Agreement”);

 

WHEREAS, Parent REIT, Manager, the Operating Partnership and the Sub-REIT agreed
to amend and restate the Original Management Agreement by entering into the
Amended and Restated Management and Advisory Agreement, dated as of January 18,
2005, as amended on February 17, 2007, and as further amended on June 18, 2008
(as amended, the “First Amended Management Agreement”);

 

WHEREAS, Parent REIT, Manager, the Operating Partnership and the Sub-REIT agreed
to amend and restate the First Amended Management Agreement by entering into the
Second Amended and Restated Management and Advisory Agreement, dated as of
August 6, 2009, as amended as of January 1, 2015 (as amended, the “Second
Amended Management Agreement”);

 

WHEREAS, Parent REIT, the Operating Partnership, Arbor Multifamily Lending, LLC
(formerly known as ARSR Acquisition Company, LLC), the Manager and Arbor
Commercial Funding, LLC have entered into that certain Asset Purchase Agreement,
dated February 25, 2016 (the “APA”), pursuant to which the Seller (as defined in
the APA), in addition to other transactions contemplated by the APA, has agreed
to sell the Included Business (as defined in the APA) to the Buyer (as defined
in the APA);

 

WHEREAS, as part of the sale of the Included Business, certain of the Manager’s
employees will become employees of Parent REIT and/or one or more of Parent
REIT’s subsidiaries;

 

WHEREAS, as a result of the transactions contemplated by the APA, Parent REIT,
Manager, Operating Partnership and Sub-REIT desire to amend and restate the
Second Amended Management Agreement in its entirety on the terms and conditions
hereinafter set forth.

 

NOW THEREFORE, in consideration of the mutual agreements herein set forth, the
parties hereto agree as follows:

 

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1.                                      Definitions.  The following terms have
the meanings assigned them:

 

(a)                                 “Agreement” has the meaning assigned in the
first paragraph.

 

(b)                                 “Agreed-Upon Manager Budget” has the meaning
assigned in Section 8(a)(i)(A).

 

(c)                                  “Annual Incentive Agreement” means the
Annual Incentive Agreement entered into between the Company and the Principal,
as of January 1, 2015, as amended.

 

(d)                                 “Approved Bonus Amount” has the meaning
assigned in Section 8(a)(iv)(B).

 

(e)                                  “Audit Committee” means the Audit Committee
of the Parent REIT.

 

(f)                                   “Board of Directors” means the Board of
Directors of Parent REIT.

 

(g)                                  “Calculation Delivery Date” has the meaning
assigned in Section 8(c)(iv).

 

(h)                                 “CDO Special Servicing Fees” means any fees
and other compensation payable to any servicer or special servicer of any
collateralized debt obligation of any Subsidiary.

 

(i)                                     “Closing” means the closing of the
transactions contemplated by the APA.

 

(j)                                    “Code” means the Internal Revenue Code of
1986, as amended.

 

(k)                                 “Common Share” means a share of capital
stock of Parent REIT now or hereafter authorized and issued as common voting
stock of Parent REIT.

 

(l)                                     “Company” has the meaning assigned in
the first paragraph.

 

(m)                             “Company Account” has the meaning assigned in
Section 5.

 

(n)                                 “Company Cause” means any reason for
termination of this Agreement set forth in Section 13(c).

 

(a)                                 “Company Target Investments” means, whether
originated by the Company or purchased by the Company, any commercial mortgage
backed securities and permanent and bridge multifamily and commercial real
estate mortgage loans, mezzanine loans on multifamily and commercial real
estate, preferred equity investments in multifamily and commercial real estate
(so long as the terms of such preferred equity investment is not convertible
into, or sold as a unit with, common equity or instruments exercisable or
convertible into common equity and provides only a return of the principal
amount of investment plus a stated return and does not entitle the preferred
holder to participate in an unlimited return on its investment in the residual
assets of the issuer upon sale or liquidation).

 

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(o)                                 “Company Termination Notice” has the meaning
assigned in Section 13(b).

 

(p)                                 “Compensation Committee” means the
Compensation Committee of the Board of Directors.

 

(q)                                 “Cost Reimbursement Installment” has the
meaning assigned in Section 8(a)(ii).

 

(r)                                    “Covered Manager Employee” has the
meaning assigned in Section 8(a)(i)(A).

 

(s)                                   “Cure Period” has the meaning assigned in
Section 13(e).

 

(t)                                    “Discretionary Bonus Recipients” has the
meaning assigned in Section 8(a)(iv)(A).

 

(u)                                 “Effective Company Termination Date” has the
meaning assigned in Section 13(b).

 

(v)                                 “Effective Manager Termination Date” has the
meaning assigned in Section 13(d).

 

(w)                               “Excess Funds” has the meaning assigned in
Section 2(g).

 

(x)                                 “Excess Quarterly Costs” has the meaning
assigned in Section 8(a)(i)(C).

 

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

 

(z)                                  “Funds from Operations” has the meaning
assigned by the National Association of Real Estate Investment Trusts and means
net income (computed in accordance with GAAP) excluding gains (or losses) from
debt restructuring and sales of property, plus depreciation and amortization on
real estate assets, and after adjustments for unconsolidated partnerships and
joint ventures; provided, however, if an allowance for a loss or an impairment
of an Investment that is a Company Target Investment is recognized in the
Company’s income statement prepared in accordance with GAAP, any subsequent
recovery of such loss or impairment that is recorded in the Company’s income
statement prepared in accordance with GAAP shall be excluded from Funds from
Operations, except as follows: (A) 20% of the amount of such subsequent recovery
will be included in Funds from Operations for the remainder of the fiscal year
in which such subsequent recovery occurs, applied proportionally for each
remaining quarter in such fiscal year, (B) an additional 20% of such amount
shall be included in Funds from Operations for the next succeeding year at the
rate of one-fourth per calendar quarter, and (C) an additional 20% of such
amount shall be included in Funds from Operations for the second succeeding year
at the rate of one-fourth per calendar quarter.

 

(aa)                          “GAAP” means generally accepted accounting
principles in effect in the U.S. on the date such principles are applied,
consistently applied.

 

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(bb)                          “Governing Instruments” means, with respect to any
Person, the articles of incorporation and bylaws in the case of a corporation,
the certificate of limited partnership (if applicable) and partnership agreement
in the case of a general or limited partnership or the articles of formation and
operating agreement in the case of a limited liability company.

 

(cc)                            “Guidelines” has the meaning assigned in
Section 2(b)(i).

 

(dd)                          “Incentive Fee” has the meaning assigned in
Section 8(c)(i).

 

(ee)                            “Incentive Fee Payment” has the meaning assigned
in Section 8(c)(ii).

 

(ff)                              “Includable Gains” means gains from debt
restructurings and sales of properties, subject to the limitation on the
inclusion of certain gains in Funds From Operations set forth in
Section 1(bb)(ii) with respect to any subsequent recovery of prior recognized
losses and impairments of any such applicable debt restructurings and sales of
properties.

 

(gg)                            “Independent Directors” means the members of the
Board of Directors who are not officers or employees of Manager or the Company
and who are otherwise “independent” in accordance with Parent REIT’s Governing
Instruments.

 

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

 

(ii)                                  “Investments” means the investments of the
Company.

 

(jj)                                “Management Fee” means the Cost
Reimbursement plus the Incentive Fee.

 

(kk)                          “Manager” has the meaning assigned in the first
paragraph.

 

(ll)                                  “Manager Cause” means any reason for
termination of this Agreement set forth in Section 13(e).

 

(mm)                  “Manager Change of Control” means a change in the direct
or indirect (i) beneficial ownership of more than fifty percent (50%) of the
combined voting power (of any Person together with any affiliates of such Person
or Persons otherwise associated or acting in concert with such Person) of
Manager’s then outstanding equity interests, or (ii) power to direct or control
the management policies of Manager, whether through the ownership of beneficial
equity interests, common directors or officers, by contract or otherwise. 
Manager Change of Control shall not include (A) transfer by the Principal of
equity interests in the Manager or Arbor Management, LLC, the managing member of
the Manager pursuant to the Operating Agreement of the Manager, to any immediate
family member of the Principal as of the date of this Agreement, or to any
estate or trust of which any immediate family member of the Principal as of the
date of this Agreement is the beneficiary, (B) public offerings of the capital
stock of Manager, or (C) any assignment of this Agreement by Manager as
permitted hereby and in accordance with the terms hereof.

 

(nn)                          “Manager Indemnified Party” has the meaning
assigned in Section 11(b).

 

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(oo)                          “Manager Parties” has the meaning assigned in
Section 3(b).

 

(pp)                          “Manager Target Investments” means the “Seller
Target Investments as defined in the Non-Compete Agreement.

 

(qq)                          “Manager Termination Notice” has the meaning
assigned in Section 13(d).

 

(rr)                                “Non-Compete Agreement” means that certain
Non-Compete Agreement, dated as of July   , 2016, among Parent REIT, Operating
Partnership, Manager and Principal.

 

(ss)                              “OP Unit” means a unit of partnership interest
in the Operating Partnership now or hereafter authorized and issued as a unit of
partnership interest in the Operating Partnership.

 

(tt)                                “Operating Partnership” has the meaning
assigned in the first paragraph.

 

(uu)                          “Parent REIT” has the meaning assigned in the
first paragraph.

 

(vv)                          “Person” means any individual, corporation,
partnership, joint venture, limited liability company, estate, trust,
unincorporated association, any federal, state, county or municipal government
or any bureau, department or agency thereof and any fiduciary acting in such
capacity on behalf of any of the foregoing.

 

(ww)                      “Principal” means Ivan Kaufman, an individual.

 

(xx)                          “Proposed Manager Budget” has the meaning assigned
in Section 8(a)(i)(A).

 

(yy)                          “Reimbursable Expenses” has the meaning assigned
in Section 9.

 

(zz)                            “REIT” means a corporation or trust which
qualifies as a real estate investment trust in accordance with Sections 856
through 860 of the Code.

 

(aaa)                   “Services Agreement” means that certain Services
Agreement, dated as of July 1, 2003, among Parent REIT, the Operating
Partnership and Manager.

 

(bbb)                   “Subsidiary” means any entity of which Parent REIT
directly or indirectly owns the majority of the outstanding voting equity
interests, any partnership, the general partner of which is Parent REIT or any
subsidiary of Parent REIT and any limited liability company, the managing member
of which is Parent REIT or any subsidiary of Parent REIT.

 

(ccc)                      “Supervisory Certification” has the meaning assigned
in Section 8(a)(i)(C).

 

(ddd)                   “Ten Year U.S. Treasury Rate” means the arithmetic
average of the weekly average yield to maturity for actively traded current
coupon U.S. Treasury fixed interest rate securities (adjusted to constant
maturities of ten (10) years) published by the Federal Reserve Board during a
fiscal year, or, if such rate is not published by the Federal Reserve

 

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Board, any Federal Reserve Bank or agency or department of the federal
government selected by the Company.  If the Company determines in good faith
that the Ten Year U.S. Treasury Rate cannot be calculated as provided above,
then the rate will be the arithmetic average of the per annum average yields to
maturities, based upon closing asked prices on each business day during a
quarter, for each actively traded marketable U.S. Treasury fixed interest rate
security with a final maturity date not less than eight (8) and not more than
twelve (12) years from the date of the closing asked prices as chosen and quoted
for each business day in each such quarter in New York City by at least three
(3) recognized dealers in U.S. government securities selected by the Company.

 

(eee)                      “Termination Fee” means an amount equal to ten
million U.S. dollars ($10,000,000.00).

 

(fff)                         “U.S.” means United States of America.

 

2.                                      Appointment and Duties of Manager.

 

(a)                                 Appointment.  The Company hereby appoints
Manager to manage the Investments of the Company subject to the further terms
and conditions set forth in this Agreement, and Manager hereby agrees to use its
commercially reasonable efforts to perform each of the duties set forth herein. 
The appointment of Manager shall be exclusive to Manager except to the extent
that Manager otherwise agrees, in its sole and absolute discretion, and except
to the extent that Manager elects pursuant to the terms of this Agreement to
cause the duties of Manager hereunder to be provided by third parties.

 

(b)                                 Duties.  Manager, in its capacity as manager
of the Investments and the day-to-day operations of the Company, at all times
will be subject to the supervision of the Board of Directors and the board of
directors of the Sub-REIT and will have only such functions and authority as the
Company may delegate to it, including, without limitation, the functions and
authority identified herein and delegated to Manager hereby.  Manager will be
responsible for the day-to-day management and administrative 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,
including, without limitation:

 

(i)                                     serving as the Company’s consultant with
respect to the periodic review of the investment criteria and parameters for
Investments, borrowings and operations, any modifications to which shall be
approved by a majority of the Independent Directors (such policy guidelines as
are in effect on the date hereof, as the same may be modified with such
approval, the “Guidelines”), and other policies for approval by the Board of
Directors;

 

(ii)                                  investigation, analysis and selection of
investment opportunities;

 

(iii)                               with respect to prospective investments by
the Company and dispositions of Investments, conducting negotiations with real
estate brokers, sellers and purchasers, and their respective agents and
representatives, investment bankers, mortgage bankers and owners of privately
and publicly held real estate companies;

 

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(iv)                              coordinating and managing operations of any
joint venture or co-investment interests held by the Company and conducting all
matters with the joint venture or co-investment partners;

 

(v)                                 providing executive, management and
administrative personnel required to render services to the Company;

 

(vi)                              administering the day to day management of the
Company and performing and supervising the performance of such other
administrative functions necessary in the management of the Company as may be
agreed upon by Manager and the Board of Directors, including, without
limitation, collection of interest, fee and other income, payment of the
Company’s debts and obligations, payment of dividends or distributions to the
holders of the Common Shares and maintenance of appropriate back-office
infrastructure to perform such administrative functions;

 

(vii)                           communicating on behalf of the Company with the
holders of any equity or debt securities of the Parent REIT, Sub-REIT or their
respective Subsidiaries as required to satisfy the reporting and other
requirements of any governmental entities or agencies or trading markets and to
maintain effective relations with such holders;

 

(viii)                        counseling the Company in connection with policy
decisions to be made by the Board of Directors or the board of directors or
similar governing bodies of the Subsidiaries;

 

(ix)                              evaluating and recommending to the Board of
Directors hedging strategies and, as the Board of Directors shall request or
Manager shall deem appropriate, engaging in hedging activities on behalf of the
Company, in a manner consistent with such strategies, as so modified from time
to time, Parent REIT’s status as a REIT, Sub-REIT’s status as a REIT and the
Guidelines;

 

(x)                                 counseling Parent REIT and Sub-REIT
regarding the maintenance of their status as REITs and monitoring compliance
with the various REIT qualification tests and other rules set out in the Code
and the Treasury Regulations promulgated thereunder;

 

(xi)                              counseling the Company regarding the
maintenance of its exemption from the Investment Company Act and monitoring
compliance with the requirements for maintaining such exemption;

 

(xii)                           assisting the Company in developing criteria for
debt and equity financing that is specifically tailored to the Company’s
investment objectives, making available to the Company its knowledge and
experience with respect to Company Target Investments and other real estate and
real estate-related transactions and serving as the originating lender of such
investments comprising Company Target Investments;

 

(xiii)                        representing and making recommendations to the
Company in connection with its investment in a diversified portfolio of Company
Target Investments and other real estate transactions with select borrowers and
principals;

 

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(xiv)                       investing and re-investing any moneys and securities
of the Company (including investing in short-term investments pending investment
in Investments, payment of fees, costs and expenses or payments of dividends or
distributions to stockholders and partners of the Company) and advising the
Company with respect to its capital structure and capital raising;

 

(xv)                          causing the Company to retain qualified
accountants and legal counsel, as applicable, to assist in developing
appropriate accounting and compliance procedures and testing systems with
respect to financial reporting obligations, as applicable, and Parent REIT and
Sub-REIT’s compliance with the provisions of the Code applicable to REITs and
the Treasury Regulations promulgated thereunder and to conduct quarterly
compliance reviews with respect thereto;

 

(xvi)                       causing the Company to qualify to do business in all
applicable jurisdictions and to obtain and maintain all appropriate licenses;

 

(xvii)                    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 required under the Exchange Act;

 

(xviii)                 taking all necessary actions to enable the Company to
make required tax filings and reports, including, with respect to Parent REIT
and Sub-REIT, soliciting stockholders for required information to the extent
provided by the provisions of the Code applicable to REITs and the Treasury
Regulations promulgated thereunder;

 

(xix)                       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,
subject to such limitations or parameters as may be imposed from time to time by
the Board of Directors;

 

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

 

(xxi)                       using commercially reasonable efforts to cause the
Company to comply with all applicable laws; and

 

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

 

(c)                                  Subcontracts.  Manager may enter into
agreements with other parties, including its affiliates, for the purpose of
engaging one or more property and/or asset managers for and on behalf, and at
the sole cost and expense, of the Company to provide property

 

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management, asset management, leasing, development and/or similar services to
the Company with respect to the Investments, pursuant to property management
agreement(s) and/or asset management agreement(s) with terms which are then
customary for agreements regarding the management of assets similar in type,
quality and value to the assets of the Company; provided, that any such
agreements entered into with affiliates of Manager shall be (i) on terms no more
favorable to such affiliate then would be obtained from a third party on an
arm’s-length basis, and (ii) to the extent the same do not fall within the
provisions of the Guidelines, approved by a majority of the Independent
Directors.

 

(d)                                 Service Providers.  Manager may retain for
and on behalf of the Company such services of accountants, legal counsel,
appraisers, insurers, brokers, transfer agents, registrars, developers,
investment banks, financial advisors, banks, other lenders and other Persons,
including Manager’s affiliates, as Manager deems necessary or advisable in
connection with the management and operations of the Company; provided, that any
agreements entered into with affiliates of Manager to perform any such services
shall be (i) on terms no more favorable to such affiliate then would be obtained
from a third party on an arm’s-length basis, and (ii) to the extent the same do
not fall within the provisions of the Guidelines, approved by a majority of the
Independent Directors.  The Company shall pay all expenses, and reimburse
Manager for Manager’s expenses incurred on its behalf, in connection with any
such services to the extent such expenses are reimbursable by the Company to
Manager pursuant to Section 9.

 

(e)                                  Reporting Requirements. As frequently as
Manager may deem necessary or advisable, or at the direction of the Board of
Directors, Manager shall prepare, or cause to be prepared, with respect to any
Investment (i) at the Company’s sole cost and expense, an appraisal prepared by
an independent real estate appraiser, (ii) reports and information on the
Company’s operations and Investment performance, and (iii) such other
information reasonably requested by the Company.  The Company shall pay all
expenses, and reimburse Manager for Manager’s expenses incurred on its behalf,
in connection with the foregoing clauses (ii) and (iii) to the extent such
expenses are reimbursable by the Company to Manager pursuant to Section 9.

 

(f)                                   Manager shall prepare, or cause to be
prepared, at the sole cost and expense of the Company, all reports, financial or
otherwise, with respect to Parent REIT, the Operating Partnership, Sub-REIT and
the other Subsidiaries reasonably required by the Board of Directors in order
for Parent REIT, the Operating Partnership, Sub-REIT and the other Subsidiaries
to comply with their Governing Instruments or any other materials required to be
filed with any governmental entity or agency, and shall prepare, or 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 of good
reputation. Manager shall prepare 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 Guidelines and policies approved by the Board of Directors.

 

(g)                                  Excess Funds.  Notwithstanding anything
contained in this Agreement to the contrary, except to the extent that the
payment of additional moneys is proven by the Company to have been required as a
direct result of Manager’s acts or omissions which result in the right of the
Company to terminate this Agreement pursuant to Section 13(c) and except as

 

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expressly provided in Section 11(c), Manager shall not be required to expend
money (“Excess Funds”) in excess of that contained in any applicable Company
Account or otherwise made available by the Company to be expended by Manager
hereunder.

 

(h)                                 Reliance by Manager.  In performing its
duties under this Section 2, 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 Manager.

 

3.                                      Dedication; Exclusivity..

 

(a)                                 Devotion of Time.  Manager will provide the
Company with a management team, including the Chief Executive Officer and the
Chief Financial Officer of the Manager, to provide the management services to be
provided by Manager to the Company hereunder, the members of which team shall
devote such of their time to the management of the Company as the Independent
Directors determine is necessary and appropriate, commensurate with the level of
activity of the Company from time to time.  The portion of the compensation of
such officers payable by the Company pursuant to the Agreed-Upon Budget, as such
Agreed Upon-Budget may be adjusted pursuant to the quarterly review contemplated
in Section 8(a)(i)(C), shall reflect such determination.  The Company shall have
the benefit of Manager’s best judgment and effort in rendering services and, in
furtherance of the foregoing, Manager shall not undertake activities which, in
its reasonable judgment, will substantially adversely affect the performance of
its obligations under this Agreement.

 

(b)                                 Additional Activities.  Except to the extent
set forth in Section 3(a) and subject to the provisions of this Section 3(b),
Manager and any of its affiliates, and any of the officers and employees of any
of the foregoing (the “Manager Parties”), may engage in any other businesses and
render services of any kind to any other Person, including investment in, or
advisory service to others investing in, any other real estate and real
estate-related transactions other than Company Target Investments.

 

(c)                                  Manager Exclusivity Rights.  Manager and
any other Manager Party may, and the Company agrees not to, pursue any
investment opportunities consisting of Manager Target Investments.

 

(d)                                 Officers, Employees, Etc.  Manager, members,
partners, officers, employees and agents of Manager or affiliates of Manager may
serve as directors, officers, employees, agents, nominees or signatories for
Parent REIT, the Operating Partnership, Sub-REIT or any other Subsidiary, to the
extent permitted by their Governing Instruments, as may be amended from time to
time, or by any resolutions duly adopted by the Board of Directors pursuant to
Parent REIT’s Governing Instruments.  When executing documents or otherwise
acting in such capacities for Parent REIT, the Operating Partnership, Sub-REIT
or such other Subsidiary, such Persons shall use their respective titles with
respect to Parent REIT, the Operating Partnership, Sub-REIT or such other
Subsidiary.

 

4.                                      Agency.  Manager shall act as agent of
the Company in making, acquiring, financing and disposing of Investments,
disbursing and collecting the Company’s funds, paying

 

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the debts and fulfilling the obligations of the Company, supervising the
performance of professionals engaged by or on behalf of the Company and
handling, prosecuting and settling any claims of or against the Company, the
Board of Directors, holders of Parent REIT, the Operating Partnership, Sub-REIT
or any other Subsidiary’s securities or the Company’s representatives or
properties.

 

5.                                      Bank Accounts.  At the direction of the
Board of Directors, Manager may establish and maintain one or more bank accounts
in the name of Parent REIT, the Operating Partnership, Sub-REIT or any other
Subsidiary (any such account, a “Company Account”), collect and deposit funds
into any such Company Account or Company Accounts and disburse funds from any
such Company Account or Company Accounts, under such terms and conditions as the
Board of Directors may approve.  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 Parent REIT.

 

6.                                      Records; Confidentiality.

 

(a)                                 Records.  Manager shall maintain appropriate
books of account and records relating to services performed under this
Agreement, and such books of account and records shall be accessible for
inspection by representatives of Parent REIT, the Operating Partnership,
Sub-REIT or any other Subsidiary at any time during normal business hours upon
one (1) business day’s advance written notice.

 

(b)                                 Confidentiality.  Manager shall keep
confidential any nonpublic information obtained in connection with the services
rendered under this Agreement and shall not disclose any such information (or
use the same except in furtherance of its duties under this Agreement), except: 
(i) with the prior written consent of the Board of Directors; (ii) to legal
counsel, accountants and other professional advisors, so long as Manager informs
such Persons of the confidential nature of such information and directs them to
treat such information confidentially; (iii) to appraisers in the ordinary
course of business; (iv) to governmental officials having jurisdiction over
Manager; (v) as required by law or legal process to which Manager or any Person
to whom disclosure is permitted hereunder is a party or in connection with
Manager’s assertion in any judicial or nonjudicial proceeding of any claim,
counterclaim or defense against the Company; or (vi) information which has
previously become available through the actions of a Person other than Manager
not resulting from Manager’s violation of this Section 6(b).

 

7.                                      Obligations of Manager; Restrictions.

 

(a)                                 Asset Representations and Warranties. 
Manager shall require each seller or transferor of investment assets to the
Company to make such representations and warranties regarding such assets as
may, in the judgment of Manager, be necessary and appropriate.  In addition,
Manager shall take such other action as it deems necessary or appropriate with
regard to the protection of the Investments.

 

(b)                                 Restrictions.  Manager shall refrain from
any action that, in its sole judgment made in good faith, (i) is not in
compliance with the Guidelines, (ii) would adversely affect the status of Parent
REIT or Sub-REIT as REITs, or (iii) would violate any law, rule or

 

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regulation of any governmental body or agency having jurisdiction over Parent
REIT, the Operating Partnership, Sub-REIT or any other Subsidiary or that would
otherwise not be permitted by such Person’s Governing Instruments.  If Manager
is ordered to take any such action by the Board of Directors, Manager shall
promptly notify the Board of Directors of Manager’s judgment that such action
would adversely affect such status or violate any such law, rule or regulation
or Governing Instruments.  Notwithstanding the foregoing, Manager, its
directors, officers, stockholders and employees shall not be liable to Parent
REIT, the Operating Partnership, Sub-REIT or any other Subsidiary, the Board of
Directors, Parent REIT or Sub-REIT’s stockholders or the Operating Partnership’s
partners for any act or omission by Manager, its directors, officers,
stockholders or employees except as provided in Section 11.

 

(c)                                  Interested Party Transaction.  Manager
shall not (i) consummate any transaction which would involve the acquisition by
the Company of property in which Manager or any of its affiliates has an
ownership interest or the sale by the Company of property to Manager or any of
its affiliates, or (ii) under circumstances where Manager is subject to an
actual or potential conflict of interest because it manages both the Company and
another Person (not an affiliate of the Company) with which the Company has a
contractual relationship, take any action constituting the granting to such
other Person of a waiver, forebearance or other relief, or the enforcement
against such other Person of remedies, under or with respect to the applicable
contract, unless such transaction or action, as the case may be and in each
case, is approved by a majority of the Independent Directors.

 

(d)                                 Joint Ventures.  The Company shall not
invest in joint ventures with Manager or any of its affiliates, unless such
Investment is (i) made in accordance with the Guidelines, and (ii) approved in
advance by a majority of the Independent Directors.

 

(e)                                  Board of Director Review.  The Board of
Directors periodically reviews the Guidelines and the Company’s portfolio of
Investments.  If a majority of the Independent Directors determine in their
periodic review of transactions that a particular transaction does not comply
with the Guidelines, then a majority of the Independent Directors will consider
what corrective action, if any, can be taken.

 

(f)                                   Tangible Net Worth; Insurance.  Manager
shall at all times during the term of this Agreement (including the initial term
and any renewal term) maintain a tangible net worth equal to or greater than
$3,000,000.  In addition, Manager shall maintain “errors and omissions”
insurance coverage and such other insurance coverage which is customarily
carried by property, asset and investment managers performing functions similar
to those of Manager under this Agreement with respect to assets similar to the
Investments of the Company, in an amount which is comparable to that customarily
maintained by other managers or servicers of similar assets.

 

8.                                      Compensation.

 

(a)                                 Cost Reimbursement.

 

(i)                                     General. Subject to the provisions of
this Section 8(a), the Company shall reimburse the Manager for the costs
incurred by the Manager in performing the duties set forth in Section 2 (other
than any Expenses incurred on behalf

 

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of the Company which shall be reimbursed pursuant to Section 9) pursuant to the
following procedures and guidelines.

 

(A)                               With respect to the Closing, on or prior to a
day which is at least    days prior to the Closing, and thereafter, on or prior
to December 31st of each fiscal year (beginning on December 31, 2016), the
Manager shall submit to the Audit Committee a proposed annual budget of Manager
to perform the duties set forth in Section 2 in the immediately following fiscal
year (the “Proposed Manager Budget”).  For the year in which the Closing occurs,
the Proposed Manager Budget shall apply to the period beginning on the date of
the Closing and ending on the next December 31st. The Proposed Manager Budget
should include a reasonably detailed description of each type and amount of cost
expected to be incurred by Manager in performing such duties.  Such costs may
include pro rata allocations of Manager’s costs for (1) the property and
services of Manager expected to be utilized by the Company and (2) the base
salaries and “annual bonus potential,” if any, of each employee of the Manager
expected to perform services on behalf of both the Company and Manager (a
“Covered Manager Employee”).  As soon as practicable after the Proposed Manager
Budget is provided to the Audit Committee, the Audit Committee shall review the
amount and type of costs included in the Proposed Manager Budget.

 

(B)                               On or prior to the Closing, and thereafter on
or prior to February 28th of each fiscal year (beginning on February 28, 2017),
Manager and the Company each agree to use commercially reasonable efforts to
agree upon the amount and type of each cost expected to be incurred by Manager
in performing the duties set forth in Section 2 in the immediately following
year that will be reimbursed by the Company (the “Agreed-Upon Manager Budget”).

 

(C)                               Within forty-five (45) days after the last day
of each calendar quarter beginning with the first quarter ending after the
Closing, Manager shall submit a report to the Audit Committee setting forth
(1) Manager’s actual costs to perform the duties set forth in Section 2 in such
quarter, and (2) the amounts set forth in the Agreed-Upon Manager Budget
allocable to such quarter.  In addition, the Manager shall cause each supervisor
of a Covered Manager Employee to certify to the Company whether or not there
have been any material changes in the amount of time dedicated to the Company’s
business in such quarter (a “Supervisor Certification”).

 

(1)                                 If the total cost incurred by Manager to
perform the duties set forth in Section 2 in any given quarter exceeds the
amount set forth in the Agreed-Upon Manager Budget allocable to such quarter,
excluding any annual bonus potential amounts for any Covered Manager Employee
(the “Excess Quarterly Costs”), the Company shall reimburse the Manager for such
Excess Quarterly Costs upon receipt of Manager’s written request therefor. Such
request shall describe the type and amount of such excess costs and Manager’s
business reasons for such excess costs.  The Company shall reimburse Manager for
such Excess Quarterly Costs if

 

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(i) such Excess Quarterly Costs represent types of costs contemplated in the
Agreed-Upon Manager Budget, and (ii) the Audit Committee determines, in its
reasonable discretion, that Manager’s business reason for the incurrence of the
Excess Quarterly Costs is reasonable in the context of the performance of
Manager’s duties set forth in Section 2.

 

(2)                                 If the total cost incurred by Manager to
perform the duties set forth in Section 2 in any given quarter is less than the
amount set forth in the Agreed-Upon Manager Budget allocable to such quarter,
excluding any annual bonus potential amounts for any Covered Manager Employee,
Manager shall refund to the Company the difference between the actual amount
incurred by Manager to perform the duties set forth in Section 2 in such quarter
and the amount set forth in the Agreed-Upon Manager Budget allocable to such
quarter, subject to an annual reconciliation of the actual costs incurred by the
Manager to perform the duties set forth in Section 2 for each year.

 

(ii)                                  Cost Reimbursement Installments.  Subject
to clauses (i)(C) and (iii) of this Section 8(a), the Company shall pay the
Manager one-twelfth (1/12) of the Agreed-Upon Manager Budget (other than any
amounts identified as the “annual bonus potential” of any Covered Manager
Employee) in cash on a monthly basis in arrears (each, a “Cost Reimbursement
Installment”) within twenty (20) days of the last day of the calendar month with
respect to which such Cost Reimbursement Installment is payable.

 

(A)                               If the Company agrees to reimburse Manager for
any Excess Quarterly Costs pursuant to Section 8(a)(i)(C), the Company shall pay
Manager the agreed-upon amount for any prior periods within three (3) business
days of such determination and the Company shall include the agreed-upon amount
for any subsequent periods in the monthly Cost Reimbursement Installments
payable to Manager immediately following such determination.

 

(B)                               The Cost Reimbursement Installment payable to
Manager for any given calendar month shall be reduced by the dollar amount
representing the aggregate of the amounts set forth in clauses (A) and (B) of
Section 8(a)(iii) applicable to such month.  If the aggregate of such amounts
applicable to any month exceeds the amount of the Cost Reimbursement Installment
otherwise payable for such month, the Company shall not pay Manager any Cost
Reimbursement Installment for such month and shall retain the excess and apply
it to reduce the Cost Reimbursement Installment otherwise payable to Manager for
the next calendar month or months until fully applied.  Upon the expiration or
earlier termination of this Agreement, if any such excess amounts remain to be
applied against a succeeding monthly Cost Reimbursement Installment, Manager
shall pay to the Company the amount of such excess unapplied amounts.

 

14

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(iii)                               Cost Reimbursement Credits.

 

(A)                               CDO Special Servicing Fees.  Any CDO Special
Servicing Fees payable to, or received by, Manager with respect to any period
beginning on or after January 1, 2009 shall be retained by the Manager and the
Cost Reimbursement Installment due to Manager for the month in which such fees
were paid to Manager shall be reduced by an amount equal to one hundred percent
(100%) of the amount of any such fees.

 

(B)                               Asset Management Services.  The cost of
services provided by the Company’s Asset Management Group to Manager for which
Manager is required to reimburse the Company pursuant to Section 1(c) of the
Services Agreement shall be retained by the Manager and the Cost Reimbursement
Installment due to Manager for the month in which such costs were incurred by
the Company shall be reduced by an amount equal to one hundred percent (100%) of
the amount of any such costs.

 

(iv)                              Covered Manager Employee Bonuses.  The Company
shall reimburse Manager for a portion of the annual bonus amounts proposed to be
paid to each Covered Manager Employee by the Manager, subject the following
procedures and guidelines:

 

(A)                               Prior to the Compensation Committee’s
consideration of the annual bonus amounts to be paid to (1) the Covered Manager
Employees who are expected to be the seven (7) most highly compensated Covered
Manager Employees for such year, (2) any Covered Manager Employee whose proposed
annual bonus amount exceeds 50% of his or her base salary for such year, and
(3) any Covered Manager Employee whose proposed annual bonus amount is in excess
of $200,000 (collectively, the “Discretionary Bonus Recipients”), Manager shall
provide the Compensation Committee with (i) the total bonus amounts proposed to
be paid by Manager to each Discretionary Bonus Recipient, and (ii) the portion
of such total bonus amounts proposed to be paid by the Company to Manager,
accompanied by a Supervisor Certification for each Covered Manager Employee with
respect to the applicable year or bonus period.

 

(B)                               The Compensation Committee shall have the sole
discretion to approve the amount of annual bonus of each Discretionary Bonus
Recipient to be paid by the Company to Manager (the “Approved Bonus Amount”). 
If the proposed bonus amount for the Discretionary Bonus Recipient is less than
or equal to such person’s annual bonus potential as set forth in the Agreed-Upon
Manager Budget for such year, and the Compensation Committee does not approve
such proposed bonus amount, the Company shall give Manager a commercially
reasonable reason for its decision.

 

(C)                               Within fifteen (15) days after the approval
contemplated in clause (B) above, the Company shall pay Manager (1) the Approved
Bonus Amount for each Discretionary Bonus Recipient, and (2) the Company’s
allocable portion of the total bonus amount to be paid by the Manager to each
other Covered Manager Employee, subject to such amounts not exceeding the
Covered

 

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Manager Employees’ aggregate annual bonus potential set forth in the Agreed-Upon
Manager Budget for the applicable year.

 

(v) For so long as the Principal is employed by the Company and serves as its
Chief Executive Officer, the Manager shall have no obligation under Section 3 of
this Agreement to devote the time of its Chief Executive Officer to the
Company’s activities. For so long as the Principal’s Annual Incentive Agreement
is in effect, (a) all salary and bonus amounts payable by the Company to the
Principal shall be determined solely pursuant to the terms of the Kaufman Annual
Incentive Agreement and not the terms of Section 8 of this Agreement, and
(b) the Principal shall not be considered a Covered Manager Employee (as defined
in the Original Agreement) or a Discretionary Bonus Recipient.

 

(b)                                 Characterization and Waiver of Exit Fees. 
With respect to any Investments providing for the payment of any exit fees by
the borrowers thereunder, Manager shall use commercially reasonable efforts to
structure the applicable loan and other documents in such a manner that it is
reasonably likely that any such exit fees may be characterized as interest or
deferred interest for U.S. federal income tax purposes.

 

(c)                                  Incentive Fee.

 

(i)                                     In addition to the Cost Reimbursement,
the Company shall pay Manager an annual incentive fee (the “Incentive Fee”) on a
cumulative, but not compounding, basis, equal to the product of (A) twenty-five
percent (25%) of the dollar amount by which (1)(a) the Operating Partnership’s
Funds from Operations (before giving effect to payment of the Incentive Fee) per
OP Unit (based on the weighted average number of OP Units outstanding, including
OP Units issued to Parent REIT corresponding to outstanding Common Shares), plus
(b) Includable Gains or losses from debt restructuring and sales of property per
OP Unit (based on the weighted average number of OP Units outstanding, including
OP Units issued to Parent REIT corresponding to outstanding Common Shares),
exceed (2) the product of (a) the greater of (x) $10.00 and (y) the weighted
average (based on Common Shares and OP Units) of (i) the book value per OP Unit
of the net assets contributed by Manager to the Operating Partnership on July 1,
2003, (ii) $15, (iii) the offering price per Common Share (including Common
Shares issued upon the exercise of warrants or options) at any secondary Common
Share offerings by Parent REIT (adjusted for any prior capital dividends or
distributions), and (iv) the issue price per OP Unit for subsequent
contributions to the Operating Partnership, and (b) the greater of (i) nine and
one-half percent (9.5%) per annum, and (ii) the Ten Year U.S. Treasury Rate plus
three and one-half percent (3.5%) per annum, and (B) the weighted average number
of OP Units outstanding, including OP Units issued to Parent REIT corresponding
to outstanding Common Shares.

 

(ii)                                  The Incentive Fee shall be payable
annually in arrears; provided, however, Manager shall receive quarterly
installments thereof in advance, and Manager shall calculate each such
installment based on the period of twelve (12) months ending on the last day of
the fiscal quarter with respect to which such installment is payable

 

16

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(provided, for calendar year 2003, such calculations shall be based on the
period of three (3) or six (6) months, as applicable, ending on the last day of
the fiscal quarter with respect to which such installment is payable), and
deliver such calculation to the Board of Directors, within forty-five (45) days
following the last day of each fiscal quarter.  The Company shall pay Manager
each installment of the Incentive Fee (each, an “Incentive Fee Payment”) within
sixty (60) days following the last day of the fiscal quarter with respect to
which such Incentive Fee Payment is payable.

 

(iii)                               Twenty-five percent (25%) of the Incentive
Fee shall (subject to the remaining provisions of this Section 8(c)(iii)) be
payable to Manager in Common Shares, and the remainder thereof shall be paid in
cash; provided, Manager may (subject to the remaining provisions of this
Section 8(c)(iii)) elect, by so indicating in the installment calculation
delivered to Board of Directors, to receive more than twenty-five percent (25%)
of the Incentive Fee in the form of Common Shares; provided, however, Manager
may not receive payment of any portion of the Incentive Fee in the form of
Common Shares, either automatically or by election, if such payment would result
a violation of the Common Share ownership restrictions set forth in Parent
REIT’s Governing Instruments.  For purposes of determining the Common Share
equivalent of the amount of the Incentive Fee payable in Common Shares,
(A) prior to the date the Common Shares are publicly traded, each Common Share
shall have a value equal to the book value per Common Share on the last day of
the fiscal quarter with respect to which the Incentive Fee is being paid, and
(B) from and after the date the Common Shares are publicly traded, each Common
Share shall have a value equal to the average of the closing price per Common
Share of the last (20) trading days of the fiscal quarter with respect to which
the Incentive Fee is being paid.  Manager’s receipt of Common Shares in
accordance herewith shall be subject to all applicable securities exchange
rules and securities laws (including, without limitation, prohibitions on
insider trading).

 

(iv)                              Each Incentive Fee Payment shall be deemed to
be an advance of a portion of the Incentive Fee payable for the subject fiscal
year.  The Manager shall calculate the Incentive Fee payable during the
immediately preceding fiscal year (or partial fiscal year, if applicable,
following the expiration or earlier termination of this Agreement), and deliver
such calculation to the Board of Directors, within seventy-five (75) days
following (A) the last day of each fiscal year during the term, and (B) the date
of expiration or earlier termination of this Agreement (such date, the
“Calculation Delivery Date”).  If the amount of the Incentive Fee for such
fiscal year (or partial fiscal year, if applicable) exceeds the sum of the
Incentive Fee Payments made during such fiscal year (or partial fiscal year, if
applicable), the Company shall pay Manager the amount of such underpayment,
subject to the provisions of Section 8(c)(iii), within fifteen (15) days after
the date Manager delivers such calculation to the Board of Directors.  If the
amount of the Incentive Fee due and payable for any fiscal year (or partial
fiscal year, if applicable) is less than the sum of the Incentive Fee Payments
made with respect to such fiscal year (or partial fiscal year, if applicable),
Manager shall refund to the Company the portion of Incentive Fee Payments
received with respect to such fiscal year that exceeds the Incentive Fee due for
such fiscal year, in cash, within fifteen (15) days of the Calculation Delivery
Date.

 

17

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(v)                                 Special Incentive Fees.  The Independent
Directors may from time to time in their sole discretion consider and approve
the payment of special incentive fees to Manager in consideration of the
accomplishment of certain specified corporate objectives.

 

9.                                      Expenses.  Subject to Section 8(a), the
Company shall be responsible for all expenses incurred on its behalf in
accordance with this Agreement.  The Company shall reimburse Manager pursuant to
Section 10 for all third party expenses incurred by Manager on behalf of the
Company, which expenses may include the following:

 

(a)                                 expenses in connection with the issuance and
transaction costs incident to the acquisition, disposition and financing of
Investments;

 

(b)                                 legal, accounting, tax and auditing fees and
expenses of third parties for services rendered for the Company by providers
retained by Manager;

 

(c)                                  compensation, benefits and expenses of the
Independent Directors and the Company’s employees;

 

(d)                                 travel and other out-of-pocket expenses
incurred by the Company’s employees in connection with the purchase, financing,
refinancing, sale or other disposition of Investments;

 

(e)                                  compensation and expenses of the Company’s
custodian and transfer agent, if any;

 

(f)                                   the cost of liability insurance to
indemnify (i) the Company’s directors and officers, and (ii) the underwriters in
connection with any securities offerings of Parent REIT, the Operating
Partnership, Sub-REIT or any other Subsidiary;

 

(g)                                  any litigation, arbitration or similar
costs incurred by Manager on behalf of the Company relating to or arising from
any claim, dispute or action brought by or against the Company;

 

(h)                                 costs associated with the establishment and
maintenance of any credit facilities or other indebtedness of the Company
(including, without limitation, commitment and origination fees, legal fees,
closing and other costs) or any securities offerings of Parent REIT, the
Operating Partnership, Sub-REIT or any other Subsidiary;

 

(i)                                     costs incurred in raising capital for
the Company, including fees and expenses of investment banks, financial
advisors, banks and other lenders;

 

(j)                                    expenses relating to interest payments,
dividends or distributions in cash or any other form made or caused to be made
by the Board of Directors to or on account of the holders of securities or units
of Parent REIT, the Operating Partnership, Sub-REIT or any other Subsidiary,
including, without limitation, in connection with any dividend reinvestment
plan;

 

18

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(k)                                 expenses relating to the production and
distribution of communications to holders of securities or units of Parent REIT,
the Operating Partnership, Sub-REIT or any other Subsidiary and other
bookkeeping and clerical work necessary to maintain relations with the holders
of such securities or units and to comply with the continuous reporting and
other requirements of governmental entities or agencies, including, without
limitation, (i) costs of preparing and filing required reports with the
Securities and Exchange Commission, (ii) costs payable by Parent REIT to any
transfer agent or registrar in connection with the listing and/or trading of the
Common Shares on any exchange, (iii) fees payable by Parent REIT to any such
exchange in connection with its listing, and (iv) costs of preparing, printing
and mailing Parent REIT’s annual report to its shareholders and proxy materials
with respect to any meeting of Parent REIT’s shareholders;

 

(l)                                     other costs and expenses relating to the
Company’s business and investment operations, including, without limitation, the
costs and expenses of acquiring, owning, protecting, maintaining, developing and
disposing of Investments, including taxes, license fees and appraisal,
reporting, audit and legal fees; and

 

(m)                             such other extraordinary or non-recurring
expenses incurred by Manager in connection with the performance of its services
hereunder, provided, to the extent the same are incurred with respect to matters
that do not fall within the provisions of the Guidelines, such expenses are
approved by a majority of the Independent Directors.

 

The types of expenses referred to in clauses (a) through (m) of this Section 9
are collectively referred to as the “Reimbursable Expenses.”  For the avoidance
of doubt, Manager shall not be entitled to reimbursement of the following types
of expenses pursuant to this Section 9: (i) any expenses that the Company is
required to reimburse Manager for pursuant to Section 8(a), (ii) any item
included in a Proposed Manager Budget for any given fiscal year and subsequently
excluded from the Agreed-Upon Manager Budget for such year, and (iii) any Excess
Quarterly Cost which the Independent Directors has determined shall not be
reimbursed pursuant to Section 8(a)(i)(C).

 

Except as set forth in Section 8(a), Manager shall bear the following expenses:
(i) the wages and salaries of Manager’s officers and employees; (ii) rent
attributable to the offices occupied by Manager separate from the office
maintained for the Company; and (iii) all other “overhead” expenses of Manager.

 

10.                               Reimbursable Expense Reports and
Reimbursements.  Manager shall prepare a statement documenting the Reimbursable
Expenses incurred during, and deliver the same to the Company within forty-five
(45) days following, each fiscal quarter.  Reimbursable Expenses incurred by
Manager on behalf of the Company shall be reimbursed by the Company within sixty
(60) days following each fiscal quarter.

 

11.                               Limits of Manager Responsibility;
Indemnification.

 

(a)                                 Limits of Manager Responsibility.  Manager
assumes no responsibility under this Agreement other than to render the services
set forth herein in good faith and shall not be responsible for any action of
the Board of Directors in following or declining to follow any

 

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advice or recommendations of Manager, including as set forth in Section 7(b). 
Manager, its members, managers, officers and employees will not be liable to
Parent REIT, Sub-REIT, the Operating Partnership, any other Subsidiary, the
Board of Directors, Parent REIT or the Sub-REIT’s stockholders, the Operating
Partnership’s partners or any other Subsidiary’s stockholders or partners for
any acts or omissions by Manager, its members, managers, officers or employees
pursuant to or in accordance with this Agreement, except as otherwise expressly
provided in Section 11(c).

 

(b)                                 Indemnification by Company.  Parent REIT,
Sub-REIT and/or the Operating Partnership shall, to the full extent lawful,
reimburse, indemnify and hold Manager, its members, managers, officers and
employees and each other Person, if any, controlling Manager (each, a “Manager
Indemnified Party”) harmless for and from any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever (including
reasonable attorneys’ fees and disbursements), excluding any claims by Manager’s
employees relating to the terms and conditions of their employment by Manager,
in respect of or arising out of (i) any acts or omissions of such Manager
Indemnified Party made in good faith in the performance of Manager’s duties
hereunder and not constituting such Manager Indemnified Party’s bad faith,
willful misconduct, gross negligence or material breach (beyond any applicable
cure period) of Manager’s duties under this Agreement, and (ii) the Company’s or
any of its shareholder’s, director’s, officer’s or employee’s bad faith, willful
misconduct, gross negligence or material breach (beyond any applicable cure
period) of the Company’s obligations under this Agreement.

 

(c)                                  Indemnification by Manager.  Manager shall,
to the full extent lawful, reimburse, indemnify and hold each of Parent REIT,
Sub-REIT and the Operating Partnership, its shareholders, directors, officers
and employees and each other Person, if any, controlling Parent REIT, Sub-REIT
or the Operating Partnership harmless for and from any and all expenses, losses,
damages, liabilities, demands, charges and claims of any nature whatsoever
(including reasonable attorneys’ fees and disbursements) in respect of or
arising out of (i) Manager’s or any of its member’s, manager’s, officer’s or
employee’s bad faith, willful misconduct, gross negligence or material breach
(beyond any applicable cure period) of Manager’s duties under this Agreement,
and (ii) any claims by Manager’s employees relating to the terms and conditions
of their employment by Manager.

 

12.                               No Joint Venture.  Nothing in this Agreement
shall be construed to make the Company and Manager partners or joint venturers
or impose any liability as such on either of them.

 

13.                               Term; Termination.

 

(a)                                 Term.  This Agreement shall remain in full
force and effect until December 31, 2018 unless earlier terminated by the
Company or Manager as set forth below.  This Agreement shall be renewed
automatically for successive one (1) year periods after December 31, 2018, until
this Agreement is terminated in accordance with the terms hereof.

 

(b)                                 Non-Renewal/Termination Without Company
Cause by Company.  The Company may (i) elect not to renew this Agreement at the
expiration of any one-year term

 

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described in Section 13(a), or (ii) terminate this Agreement at any time without
Company Cause, subject to the provisions of Section 13(c).  If the Company
elects not to renew this Agreement, or to terminate this Agreement without
Company Cause, the Company shall (i) deliver to Manager a written notice (the
“Company Termination Notice”) specifying the date, which may not be less than
six (6) months from the date of the Company Termination Notice, on which this
Agreement shall terminate (the “Effective Company Termination Date”), and
(ii) pay to Manager the Termination Fee no later than the Effective Company
Termination Date.  Such termination by the Company will be effective upon
Effective Company Termination Date.  For the avoidance of doubt, any
internalization of the Company’s management shall be deemed a termination of
this Agreement pursuant to which the Company shall pay the Manager the
Termination Fee unless the Company shall have exercised its right to terminate
this Agreement pursuant to Section 13(c) prior to such internalization.

 

(c)                                  Termination With Company Cause by Company. 
The Company may terminate this Agreement, by a majority vote of the Independent
Directors and without payment of the Termination Fee, if:

 

(i)                                     Manager commits fraud or acts or fails
to act in a manner that constitutes gross negligence in the performance of its
duties hereunder;

 

(ii)                                  Manager misappropriates or embezzles
Company funds;

 

(iii)                               Manager commits some other willful violation
of this Agreement in its corporate capacity (as distinguished from the acts of
any employees of Manager which are taken without the complicity of Principal);

 

(iv)                              Parent REIT removes Principal from the
position of Chief Executive Officer of Parent REIT for “cause” as such term is
defined in and interpreted in accordance with the Non-Competition Agreement;

 

(v)                                 a Manager Change of Control occurs;

 

(vi)                              Principal is no longer Chief Executive Officer
of Manager (provided such condition is not a result of Principal’s death,
disability or incapacity); or

 

(vii)                           Manager defaults in the performance or
observance of any material term, condition or covenant contained in this
Agreement to be performed or observed on its part, and such default continues
for a period of thirty (30) days after written notice thereof from the Company
specifying such default and requesting that the same be remedied within such
thirty (30) day period; provided, however, Manager shall have an additional
sixty (60) days to cure such default if (A) such default cannot reasonably be
cured with in thirty (30) days but can be cured within ninety (90) days, and
(B) Manager shall have commenced to cure such default within the initial thirty
(30) day period and thereafter diligently proceeds to cure the same within
ninety (90) days of the date of the Company’s original notice of the default.

 

Termination of this Agreement pursuant to this Section 13(c) shall become
effective, in case of the foregoing (A) clauses (i) through (iv), upon seven
(7) days’ prior written notice to

 

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Manager, (B) clauses (v) and (vi), upon thirty (30) days’ prior written notice
to Manager, and (C) clause (vii), in the event of Manager’s failure to cure and
provided the Company has delivered to Manager a termination notice, upon the
expiration of the applicable cure period.

 

(d)                                 Non-Renewal/Termination Without Manager
Cause by Manager.  Manager may, without payment of the Termination Fee,
(i) elect not to renew this Agreement at the expiration of any one-year term
described in Section 13(a), or (ii) terminate this Agreement at any time without
Manager Cause.  If Manager elects not to renew this Agreement, or to terminate
this Agreement without Manager Cause, the Manager shall (i) deliver to the
Company a written notice (the “Manager Termination Notice”) specifying the date,
which may not be less than six (6) months from the date of the Manager
Termination Notice, on which this Agreement shall terminate (the “Effective
Manager Termination Date”).  Such termination by the Company will be effective
upon Effective Manager Termination Date.

 

(e)                                  Termination With Manager Cause by Manager. 
Manager may terminate this Agreement if the Company defaults in the performance
or observance of any material term, condition or covenant contained in this
Agreement to be performed or observed on its part, and such default continues
for a period of thirty (30) days after written notice thereof from Manager
specifying such default and requesting that the same be remedied within such
thirty (30) day period (the “Cure Period”).  In the event of the Company’s
failure to cure such default within the Cure Period, this Agreement shall
terminate upon the expiration of the Cure Period provided Manager has delivered
to the Company a written notice of such termination upon the expiration of the
Cure Period.

 

14.                               Assignment.

 

(a)                                 Manager Assignment.  Except as set forth in
Section 14(c), this Agreement shall terminate at the Company’s election and
without payment of any Termination Fee, and any such assignment shall be null
and void, in the event of its assignment, in whole or in part, by Manager,
unless Manager obtains the prior written consent of Parent REIT and a majority
of the Independent Directors; provided, however, no such consent shall be
required in the case of an assignment by Manager to any affiliate whose
day-to-day business and operations are managed and supervised by Principal.  Any
permitted assignment by Manager shall bind the assignee in the same manner as
Manager is bound by the terms of this Agreement, and 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 Manager.  For purposes
of this Section 14(a) and Section 14(c), “affiliate” means any Person
controlling, controlled by or under common control with Manager, and “control”
means the direct or indirect ownership of at least fifty-one percent (51%) of
the beneficial equity interests in and voting power of such Person (and
“controlling” and “under common control with” have meanings correlative to the
foregoing).

 

(b)                                 Parent REIT Assignment.  This Agreement
shall not be assigned by Parent REIT without Manager’s prior written consent;
provided, however, no such consent shall be required in the case of an
assignment by Parent REIT to (i) a Subsidiary to which Parent REIT is also
assigning its general partnership interest in the Operating Partnership, or
(ii) a REIT or other organization which is a successor (by merger, consolidation
or purchase of assets) to Parent

 

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REIT, in which case such successor organization shall be bound under this
Agreement and by the terms of such assignment in the same manner as Parent REIT
is bound by the terms of this Agreement.

 

(c)                                  Manager Affiliate Subcontract and Partial
Assignment.  Notwithstanding any provision of this Agreement, Manager may
subcontract and assign any or all of its responsibilities under Sections 2(b),
(c) and (d) to any of its affiliates whose day-to-day business and operations
are managed and supervised by Principal in accordance with the terms of this
Agreement applicable to any such subcontract or assignment, and the Company
hereby consents to any such subcontract and assignment.  In addition, provided
that Manager provides prior written notice to the Company for informational
purposes only, nothing contained in this Agreement shall preclude any pledge,
hypothecation or other transfer of any amounts payable to Manager under this
Agreement.

 

15.                               Action Upon Termination.  From and after the
effective date of termination of this Agreement pursuant to Sections 13 or 14,
Manager shall not be entitled to compensation for further services under this
Agreement but shall be paid all compensation accruing to the date of such
termination and the Termination Fee, if applicable.  Upon such termination,
Manager shall forthwith:

 

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

 

(b)                                 deliver to the Board of Directors a full
accounting, including a statement showing all payments collected and 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

 

(c)                                  deliver to the Board of Directors all
property and documents of the Company provided to or obtained by Manager
pursuant to or in connection with this Agreement, including all copies and
extracts thereof in whatever form, then in Manager’s possession or under its
control.

 

16.                               Survival

 

Sections 6(b), 10 and 11 shall survive termination or expiration of this
Agreement.  The Company’s obligation to pay the Termination Fee as contemplated
in Section 13(b) shall survive any such termination or expiration. The
obligation of the Company to pay any of the amounts set forth in Section 8 with
respect to any period prior to the effective date of any termination or
expiration of this Agreement shall survive such termination or expiration.  The
obligation of the Manager to pay the Prime Outlets Excess shall survive any
termination or expiration of this Agreement.

 

17.                               Release of Money or other Property Upon
Written Request.  Manager agrees that any money or other property of the Company
held by Manager under this Agreement shall be held by Manager as custodian for
the Company, and Manager’s records shall be clearly and appropriately marked to
reflect the ownership of such money or other property by the Company.  Upon the
receipt by Manager of a written request signed by a duly authorized officer of
the

 

23

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Company requesting Manager to release to the Company any money or other property
then held by Manager for the account of the Company under this Agreement,
Manager shall release such money or other property to the Company within a
reasonable period of time, but in no event later than sixty (60) days following
such request.  Manager shall not be liable to the Company, the Independent
Directors, Parent REIT or Sub-REIT’s stockholders or the Operating Partnership’s
partners for any acts or omissions by the Company in connection with the money
or other property released to the Company in accordance with the terms hereof. 
The Company shall indemnify Manager and its members, managers, officers and
employees against any and all expenses, losses, damages, liabilities, demands,
charges and claims of any nature whatsoever which arise in connection with
Manager’s release of such money or other property to the Company in accordance
with the terms of this Section 17.  Indemnification pursuant to this Section 17
shall be in addition to any right of Manager to indemnification under
Section 11.

 

18.                               Notices.  Unless expressly provided otherwise
in this Agreement, all notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when delivered against receipt
or upon actual receipt of (a) personal delivery, (b) delivery by a reputable
overnight courier, (c) delivery by facsimile transmission against answerback, or
(d) delivery by registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:

 

If to Parent REIT, Sub-REIT

 

 

or the Operating Partnership:

 

Arbor Realty Trust, Inc.

 

 

333 Earle Ovington Boulevard, Suite 900

 

 

Uniondale, New York 11553

 

 

Attention: Chief Financial Officer

 

 

Facsimile: (516) 832-6422

 

 

 

If to Manager:

 

Arbor Commercial Mortgage, LLC

 

 

333 Earle Ovington Boulevard

 

 

Uniondale, New York 11553

 

 

Attention: Chief Financial Officer

 

 

Facsimile: (516) 832-6422

 

Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this Section 18 for the giving of notice.

 

19.                               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 permitted assigns as provided in this Agreement.

 

20.                               Entire Agreement.  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 of this Agreement. 
The express terms of this Agreement control and supersede any course of

 

24

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performance and/or usage of the trade inconsistent with any of the terms of this
Agreement.  This Agreement may not be modified or amended other than by an
agreement in writing signed by the parties hereto.

 

21.                               Governing Law.  This Agreement and all
questions relating to its validity, interpretation, performance and enforcement
shall be governed by and construed, interpreted and enforced in accordance with
the laws of the State of New York, notwithstanding any New York or other
conflict-of-law provisions to the contrary.

 

22.                               Indulgences, Not Waivers.  Neither the failure
nor any delay on the part of a party to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence.  No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.

 

23.                               Titles Not to Affect Interpretation.  The
titles of sections, paragraphs and subparagraphs contained in this Agreement are
for convenience only, and they neither form a part of this Agreement nor are
they to be used in the construction or interpretation of this Agreement.

 

24.                               Execution in Counterparts.  This Agreement may
be executed in any number of counterparts, each of which shall be deemed to be
an original as against any party whose signature appears thereon, and all of
which shall together constitute one and the same instrument.  This Agreement
shall become binding when one or more counterparts of this Agreement,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.

 

25.                               Provisions Separable.  The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or unenforceable
in whole or in part.

 

26.                               Principles of Construction.  Words used herein
regardless of the number and gender specifically used, shall be deemed and
construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context requires.  All references to
recitals, sections, paragraphs and schedules are to the recitals, sections,
paragraphs and schedules in or to this Agreement unless otherwise specified.

 

27.                               Amendments.  This Agreement may be amended
only in a writing signed by the parties hereto; provided the same has been
approved by a majority of the Independent Directors.  The approval of the
holders of the Common Shares shall not be required for any amendments to this
Agreement.

 

25

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28.                               References to Original Management Agreement,
First Amended Management Agreement and Second Amended Management Agreement

 

Any reference to the Original Management Agreement, the First Amended Management
Agreement or the Second Amended Management Agreement in any other document
executed in connection with the Original Management Agreement, the First Amended
Management Agreement, the Second Amended Management Agreement or this Agreement
shall be deemed to refer to this Agreement.

 

[NO FURTHER TEXT ON THIS PAGE]

 

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

 

 

Manager:

 

 

 

 

 

ARBOR COMMERCIAL MORTGAGE, LLC,

 

a New York limited liability company

 

 

 

 

 

 

 

By:

/s/ Ivan Kaufman

 

Name:

Ivan Kaufman

 

Title:

Chief Executive Officer

 

 

 

 

Parent REIT:

 

 

 

 

ARBOR REALTY TRUST, INC.,

 

a Maryland corporation

 

 

 

 

 

 

 

By:

/s/ Paul Elenio

 

Name:

Paul Elenio

 

Title:

Chief Financial Officer

 

 

and Executive Vice President

 

 

 

 

Operating Partnership:

 

 

 

ARBOR REALTY LIMITED PARTNERSHIP,

 

a Delaware limited partnership

 

 

 

 

 

By: Arbor Realty GPOP, Inc.,

 

 

a Delaware corporation,

 

 

its general partner

 

 

 

 

 

By:

/s/ Paul Elenio

 

 

Name:

Paul Elenio

 

 

Title:

Chief Financial Officer

 

 

 

and Executive Vice President

 

 

 

 

Sub-REIT:

 

 

 

ARBOR REALTY SR, INC.,

 

a Maryland corporation

 

 

 

 

By:

/s/ Paul Elenio

 

Name:

Paul Elenio

 

Title:

Chief Financial Officer

 

 

and Executive Vice President

 

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