Exhibit 10.1
MANAGEMENT AGREEMENT
 
THIS MANAGEMENT AGREEMENT is made as of October 28, 2009 by and among TWO
HARBORS INVESTMENT CORP., a Maryland corporation (the “Company”), TWO HARBORS
OPERATING COMPANY LLC, a Delaware limited liability company (the “Operating
Company”) and PRCM ADVISERS LLC, a Delaware limited liability company (together
with its permitted assignees, the “Manager”).
 
WHEREAS, the Company is a newly organized corporation that intends to elect to
be taxed as a REIT for federal income tax purposes;
 
WHEREAS, Pine River Capital (as defined below) is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the “Advisers
Act”), and the Manager is a wholly-owned subsidiary of Pine River Capital; and
 
WHEREAS, the Company and each of the Subsidiaries desire to retain the Manager
to provide investment advisory services to them on the terms and conditions
hereinafter set forth, and the Manager wishes to be retained to provide such
services.
 
NOW THEREFORE, in consideration of the mutual agreements herein set forth, the
parties hereto agree as follows:
 
Section 1.              Definitions.  The following terms have the following
meanings assigned to them:
 
(a)           “Agreement” means this Management Agreement, as amended from time
to time.
 
(b)           “Bankruptcy” means, with respect to any Person, (a) the filing by
such Person of a voluntary petition seeking liquidation, reorganization,
arrangement or readjustment, in any form, of its debts under Title 11 of the
United States Code or any other federal, state or foreign insolvency law, or
such Person’s filing an answer consenting to or acquiescing in any such
petition, (b) the making by such Person of any assignment for the benefit of its
creditors, (c) the expiration of 60 days after the filing of an involuntary
petition under Title 11 of the Unites States Code, an application for the
appointment of a receiver for a material portion of the assets of such Person,
or an involuntary petition seeking liquidation, reorganization, arrangement or
readjustment of its debts under any other federal, state or foreign insolvency
law, provided that the same shall not have been vacated, set aside or stayed
within such 60-day period or (d) the entry against it of a final and
non-appealable order for relief under any bankruptcy, insolvency or similar law
now or hereinafter in effect.
 
(c)           “Base Management Fee” means a base management fee equal to 1.5%
per annum, calculated and paid (in cash) quarterly in arrears, of the
Stockholders’ Equity.  The Base Management Fee will be reduced, but not below
zero, by the Company’s proportionate share of any securitization base management
fees that Pine River receives in connection with any securitizations in which
the Company invests, based on the percentage of equity the Company holds in such
securitizations.
 
(d)           “Board of Directors” means the Board of Directors of the Company.
 
(e)           “CLA Founders LLC” means CLA Founders LLC, a Delaware limited
liability company.
 
(f)           “Code” means the Internal Revenue Code of 1986, as amended.

 
 

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(g)           “Company” has the meaning set forth in the first paragraph of this
Agreement.
 
(h)           “Company Account” has the meaning set forth in Section 5 of this
Agreement.
 
(i)            “Company Indemnified Party” has the meaning set forth in
Section 11(b) of this Agreement.
 
(j)            “Effective Termination Date” has the meaning set forth in
Section 13(a) of this Agreement.
 
(k)           “Excess Funds” has the meaning set forth in Section 2(m) of this
Agreement.
 
(l)            “Exchange Act” means the Securities Exchange Act of 1934, as
amended.
 
(m)          “Expenses” has the meaning set forth in Section 9 of this
Agreement.
 
(n)           “GAAP” means generally accepted accounting principles, as applied
in the United States.
 
(o)           “Governing Instruments” means, with regard to any entity, the
articles or certificate of incorporation and bylaws in the case of a
corporation, certificate of limited partnership (if applicable) and the
partnership agreement in the case of a general or limited partnership, the
articles or certificate of formation and the 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 from time to time.
 
(p)           “Guidelines” has the meaning set forth in Section 2(b)(i) of this
Agreement.
 
(q)           “Indemnitee” has the meaning set forth in Section 11(b) of this
Agreement.
 
(r)            “Indemnitor” has the meaning set forth in Section 11(c) of this
Agreement.
 
(s)           “Independent Directors” means the members of the Board of
Directors who are not officers or employees of the Manager or any Person
directly or indirectly controlling or controlled by the Manager, and who are
otherwise “independent” in accordance with the Company’s Governing Instruments
and policies and, if applicable, the rules of any national securities exchange
on which the Company’s common stock is listed.
 
(t)            “Initial Term” has the meaning set forth in Section 13(a) of this
Agreement.
 
(u)           “Investment Company Act” means the Investment Company Act of 1940,
as amended.
 
(v)           “Investments” means the investments of the Company and the
Subsidiaries.
 
(w)          “Manager” has the meaning set forth in the first paragraph of this
Agreement.
 
(x)           “Manager Indemnified Party” has the meaning set forth in
Section 11(a) of this Agreement.
 
(y)           “MBS” means mortgage-backed securities.

 
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(z)           “Monitoring Services” has the meaning set forth in Section 2(b) of
this Agreement.
 
(aa)         “Notice of Proposal to Negotiate” has the meaning set forth in
Section 13(a) of this Agreement.
 
(bb)        “NYSE” means the New York Stock Exchange, Inc.
 
(cc)         “Operating Company” has the meaning set forth in the first
paragraph of this Agreement.
 
(dd)        “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.
 
(ee)         “Pine River” means, separately and collectively, Pine River Capital
and its direct and indirect subsidiaries; provided, however, that the term “Pine
River” shall not include the Company or any of the Subsidiaries.
 
(ff)          “Pine River Capital” means Pine River Capital Management L.P., a
Delaware limited partnership.
 
(gg)        “Portfolio Management Services” has the meaning set forth in
Section 2(b) of this Agreement.
 
(hh)        “REIT” means a “real estate investment trust” as defined under the
Code.
 
(ii)           “Renewal Term” has the meaning set forth in Section 13(a) of this
Agreement.
 
(jj)           “Securities Act” means the Securities Act of 1933, as amended.
 
(kk)         “Shared Services Agreement” means the Shared Facilities and
Services Agreement, dated the date hereof, between the Manager and Pine River
Capital.
 
(ll)           “Stockholders’ Equity” means:
 
 (i)         the sum of the net proceeds from any issuances of the Company’s
equity securities since inception (allocated on a pro rata daily basis for such
issuances during the fiscal quarter of any such issuance), plus
 
 (ii)        the Company’s retained earnings at the end of the most recently
completed quarter (without taking into account any non-cash equity compensation
expense incurred in current or prior periods), less
 
 (iii)       any amount that the Company pays for repurchases of its common
stock since inception, any unrealized gains, losses or other items that do not
affect realized net income (regardless of whether such items are included in
other comprehensive income or loss, or in net income), as adjusted to exclude

 
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(iv)        one-time events pursuant to changes in GAAP and certain non-cash
charges after discussions between the Manager and the Company’s Independent
Directors and approved by a majority of the Company’s Independent Directors.
 
For purposes of calculating Stockholders’ Equity, outstanding limited liability
company interests in the Operating Company (other than limited liability company
interests held by the Company) shall be treated as outstanding shares of capital
stock of the Company.

(mm)       “Subsidiary” means any subsidiary of the Company; any partnership,
the general partner of which is the Company or any subsidiary of the Company;
any limited liability company, the managing member of which is the Company or
any subsidiary of the Company; and any corporation or other entity of which a
majority of (i) the voting power of the voting equity securities or (ii) the
outstanding equity interests is owned, directly or indirectly, by the Company or
any subsidiary of the Company.
 
(nn)        “Sub-Management Agreement” has the meaning set forth in Section 2(e)
of this Agreement.
 
(oo)        “Termination Fee” has the meaning set forth in Section 13(b) of this
Agreement.
 
(pp)        “Termination Notice” has the meaning set forth in Section 13(a) of
this Agreement.
 
(qq)        “Treasury Regulations” means the regulations promulgated under the
Code as amended from time to time.
 
Section 2.              Appointment and Duties of the Manager.
 
(a)           The Company and each of the Subsidiaries hereby appoints the
Manager to manage the assets of the Company and the Subsidiaries subject to the
further terms and conditions set forth in this Agreement and the Manager hereby
agrees to use its commercially reasonable efforts to perform each of the duties
set forth herein.  The appointment of the Manager shall be exclusive to the
Manager except to the extent that the Manager otherwise agrees, in its sole and
absolute discretion, and except to the extent that the Manager elects, pursuant
to the terms of this Agreement, to cause the duties of the Manager hereunder to
be provided by third parties.
 
(b)           The Manager, in its capacity as manager of the assets and the
day-to-day operations of the Company and the Subsidiaries, at all times will be
subject to the supervision of the Company’s Board of Directors and will have
only such functions and authority as the Company may delegate to it including
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 the Subsidiaries and will perform (or cause to be performed) such
services and activities relating to the assets and operations of the Company and
the Subsidiaries as may be appropriate, including:
 
(i)           serving as the Company’s and the Subsidiaries’ consultant with
respect to the periodic review of the investment guidelines and other parameters
for the Investments, financing activities and operations, any modifications to
which shall be approved by a majority of the Independent Directors (such
guidelines as initially approved and attached hereto as Exhibit A, as the same
may be modified with such approval, the “Guidelines”), and other policies for
approval by the Board of Directors;

 
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(ii)          investigating, analyzing and selecting possible investment
opportunities and acquiring, financing, retaining, selling, restructuring or
disposing of Investments consistent with the Guidelines;
 
(iii)         with respect to prospective purchases, sales or exchanges of
Investments, conducting negotiations on behalf of the Company and the
Subsidiaries with sellers, purchasers and brokers and, if applicable, their
respective agents and representatives;
 
(iv)        negotiating and entering into, on behalf of the Company and the
Subsidiaries, repurchase agreements, credit finance agreements, securitizations,
agreements relating to borrowings under programs established by the U.S.
government, commercial papers, interest rate swap agreements and other hedging
instruments, custodial agreements, warehouse facilities and all other agreements
and engagements required for the Company and the Subsidiaries to conduct their
business;
 
(v)         engaging and supervising, on behalf of the Company and the
Subsidiaries and at the Company’s expense, independent contractors which provide
investment banking, securities brokerage, mortgage brokerage, other financial
services, due diligence services, underwriting review services, legal and
accounting services, and all other services as may be required relating to
Investments;
 
(vi)        coordinating and managing operations of any joint venture or
co-investment interests held by the Company and the Subsidiaries and conducting
all matters with the joint venture or co-investment partners;
 
(vii)       providing executive and administrative personnel, office space and
office services required in rendering services to the Company and the
Subsidiaries;
 
(viii)      administering the day-to-day operations and performing and
supervising the performance of such other administrative functions necessary to
the management of the Company and the Subsidiaries as may be agreed upon by the
Manager and the Board of Directors, including the collection of revenues and the
payment of the debts and obligations of the Company and the Subsidiaries and
maintenance of appropriate computer and technological services to perform such
administrative functions;
 
(ix)        communicating on behalf of the Company and the Subsidiaries with the
holders of any of their equity or debt securities as required to satisfy the
reporting and other requirements of any governmental bodies or agencies or
trading markets and to maintain effective relations with such holders;
 
(x)          counseling the Company in connection with policy decisions to be
made by the Board of Directors;
 
(xi)         evaluating and recommending to the Board of Directors hedging
strategies and engaging in hedging activities on behalf of the Company and the
Subsidiaries, consistent with such strategies as so modified from time to time,
with the Company’s qualification as a REIT and with the Guidelines;
 
(xii)        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 Treasury Regulations
thereunder and using commercially reasonable efforts to cause the Company to
qualify for taxation as a REIT;

 
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(xiii)       counseling the Company and the Subsidiaries regarding the
maintenance of their exemptions from the status of an investment company
required to register under the Investment Company Act, monitoring compliance
with the requirements for maintaining such exemptions and using commercially
reasonable efforts to cause them to maintain such exemptions from such status;
 
(xiv)      assisting the Company and the Subsidiaries in developing criteria for
asset purchase commitments that are specifically tailored to the Company’s
investment objectives and making available to the Company and the Subsidiaries
its knowledge and experience with respect to MBS, mortgage loans, real estate,
real estate-related securities, other real estate-related assets and non-real
estate-related assets;
 
(xv)       furnishing reports and statistical and economic research to the
Company and the Subsidiaries regarding their activities and services performed
for the Company and the Subsidiaries by the Manager;
 
(xvi)      monitoring the operating performance of 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;
 
(xvii)     investing and reinvesting any moneys and securities of the Company
and the Subsidiaries (including investing in short-term Investments pending
investment in other Investments, payment of fees, costs and expenses, or
payments of dividends or distributions to stockholders and partners of the
Company and the Subsidiaries) and advising the Company and the Subsidiaries as
to their capital structure and capital raising;
 
(xviii)    causing the Company and the Subsidiaries to retain qualified
accountants, auditors and legal counsel, as applicable, to assist in developing
appropriate accounting procedures and systems, internal controls and other
compliance procedures and testing systems with respect to financial reporting
obligations and compliance with the provisions of the Code applicable to REITs
and to conduct quarterly compliance reviews with respect thereto;
 
(xix)       assisting the Company and the Subsidiaries in qualifying to do
business in all applicable jurisdictions and to obtain and maintain all
appropriate licenses;
 
(xx)        assisting the Company and the Subsidiaries in complying with all
regulatory requirements applicable to them in respect of their 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, the
Securities Act, or by the NYSE;
 
(xxi)       assisting the Company and the Subsidiaries in taking all necessary
action to enable them to make required tax filings and reports, including
soliciting stockholders and partners for required information to the extent
required by the provisions of the Code applicable to REITs;
 
(xxii)      placing, or arranging for the placement of, all orders pursuant to
the Manager’s investment determinations for the Company and the Subsidiaries,
either directly with the issuer or with a broker or dealer (including any
affiliated broker or dealer);
 
(xxiii)     handling and resolving all claims, disputes or controversies
(including all litigation, arbitration, settlement or other proceedings or
negotiations) in which the Company and/or the Subsidiaries may be involved or to
which they may be subject arising out of their day-to-day operations (other than
with the Manager or its affiliates), subject to such limitations or parameters
as may be imposed from time to time by the Board of Directors;

 
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(xxiv)     using commercially reasonable efforts to cause expenses incurred by
the Company and the Subsidiaries or on their behalf 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;
 
(xxv)      representing and making recommendations to the Company and the
Subsidiaries in connection with the purchase and financing of, and commitment to
purchase and finance, MBS, mortgage loans (including on a portfolio basis), real
estate, real estate-related securities and loans, other real estate-related
assets and non-real estate-related assets, and the sale and commitment to sell
such assets;
 
(xxvi)     advising the Company and the Subsidiaries with respect to obtaining
appropriate repurchase agreements, warehouse facilities or other secured and
unsecured forms of borrowing for their assets;
 
(xxvii)    advising the Company on preparing, negotiating and entering into, on
the Company’s behalf, applications and agreements relating to programs
established by the U.S. government;
 
(xxviii)   advising the Company and the Subsidiaries with respect to and
structuring long-term financing vehicles for their portfolio of assets, and
offering and selling securities publicly or privately in connection with any
such structured financing;
 
(xxix)     performing such other services as may be required from time to time
for management and other activities relating to the assets and business of the
Company and the Subsidiaries as the Board of Directors shall reasonably request
or the Manager shall deem appropriate under the particular circumstances; and
 
(xxx)      using commercially reasonable efforts to cause the Company and the
Subsidiaries to comply with all applicable laws.
 
Without limiting the foregoing, the Manager will perform portfolio management
services (the “Portfolio Management Services”) on behalf of the Company and the
Subsidiaries with respect to the Investments.  Such services will include
consulting with the Company and the Subsidiaries on the purchase and sale of,
and other investment opportunities in connection with, the Company’s portfolio
of assets; the collection of information and the submission of reports
pertaining to the Company’s assets, interest rates and general economic
conditions; periodic review and evaluation of the performance of the Company’s
portfolio of assets; acting as liaison between the Company and the Subsidiaries
and banking, mortgage banking, investment banking and other parties with respect
to the purchase, financing and disposition of assets; and other customary
functions related to portfolio management. Additionally, the Manager will
perform monitoring services (the “Monitoring Services”) on behalf of the Company
and the Subsidiaries with respect to any loan servicing activities provided by
third parties. Such Monitoring Services will include negotiating servicing
agreements; acting as a liaison between the servicers of the assets and the
Company and the Subsidiaries; review of servicers’ delinquency, foreclosure and
other reports on assets; supervising claims filed under any insurance policies;
and enforcing the obligation of any servicer to repurchase assets.

 
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(c)           For the period and on the terms and conditions set forth in this
Agreement, the Company and each of the Subsidiaries hereby constitutes, appoints
and authorizes the Manager as its true and lawful agent and attorney-in-fact, in
its name, place and stead, to negotiate, execute, deliver and enter into such
credit finance agreements and arrangements and securities repurchase and reverse
repurchase agreements and arrangements, brokerage agreements, interest rate swap
agreements, custodial agreements and such other agreements, instruments and
authorizations on their behalf, on such terms and conditions as the Manager,
acting in its sole and absolute discretion, deems necessary or
appropriate.  This power of attorney is deemed to be coupled with an interest.
 
(d)          The Manager may enter into agreements with other parties, including
its affiliates, for the purpose of engaging one or more parties for and on
behalf, and at the sole cost and expense, of the Company and the Subsidiaries to
provide property management, asset management, leasing, development and/or other
services to the Company and the Subsidiaries (including Portfolio Management
Services and Monitoring Services) pursuant to agreement(s) with terms which are
then customary for agreements regarding the provision of services to companies
that have assets similar in type, quality and value to the assets of the Company
and the Subsidiaries; provided that (i) any such agreements entered into with
affiliates of the Manager shall be (A) on terms no more favorable to such
affiliate than would be obtained from a third party on an arm’s-length basis and
(B) to the extent the same do not fall within the provisions of the Guidelines,
approved by a majority of the Independent Directors, (ii) with respect to
Portfolio Management Services, (A) any such agreements shall be subject to the
Company’s prior written approval and (B) the Manager shall remain liable for the
performance of such Portfolio Management Services, and (iii) with respect to
Monitoring Services, any such agreements shall be subject to the Company’s prior
written approval.  Notwithstanding the foregoing, the Shared Services Agreement
shall not be subject to further review or approval by the Independent Directors
prior to the expiration of its initial term, unless such agreement shall be
amended, in which case such amendment shall be subject to the foregoing
limitations on agreements between the Manager and its affiliates.
 
(e)           The Company and the Operating Company expressly acknowledge and
agree that the Manager and Pine River Capital are, concurrent with this
Agreement, entering into the Sub-Management Agreement, dated as of even date
herewith, by and among the Manager, Pine River Capital and CLA Founders LLC (the
“Sub-Management Agreement”), and nothing herein shall limit the ability of the
Manager or Pine River Capital to enter into and perform their respective
obligations under such Sub-Management Agreement or otherwise limit the
effectiveness of such agreement.  The Company represents and warrants that the
Sub-Management Agreement has been duly authorized and approved by all necessary
action of the Company.  After the date of this Agreement, to the extent that the
Manager deems necessary or advisable, the Manager may, from time to time,
propose to retain one or more additional entities for the provision of
sub-advisory services to the Manager in order to enable the Manager to provide
the services to the Company and the Subsidiaries specified by this Agreement;
provided that any such agreement (i) shall be on terms and conditions
substantially identical to the terms and conditions of this Agreement or
otherwise not adverse to the Company and the Subsidiaries, and (ii) shall be
approved by the Independent Directors of the Company.
 
(f)           The Manager may retain, for and on behalf and at the sole cost and
expense of the Company and the Subsidiaries, such services of accountants, legal
counsel, appraisers, insurers, brokers, transfer agents, registrars, developers,
investment banks, financial advisors, due diligence firms, underwriting review
firms, banks and other lenders and others as the Manager deems necessary or
advisable in connection with the management and operations of the Company and
the Subsidiaries.  Notwithstanding anything contained herein to the contrary,
the Manager shall have the right to cause any such services to be rendered by
its employees or affiliates.  Except as otherwise provided herein, the Company
and the Subsidiaries shall pay or reimburse the Manager or its affiliates
performing such services for the cost thereof; provided that such costs and
reimbursements are no greater than those which would be payable to outside
professionals or consultants engaged to perform such services pursuant to
agreements negotiated on an arm’s-length basis.

 
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(g)          The Manager may effect transactions by or through the agency of
another person with it or its affiliates which have an arrangement under which
that party or its affiliates will from time to time provide to or procure for
the Manager and/or its affiliates goods, services or other benefits (including
research and advisory services; economic and political analysis, including
valuation and performance measurement; market analysis, data and quotation
services; computer hardware and software incidental to the above goods and
services; clearing and custodian services and investment related publications),
the nature of which is such that provision can reasonably be expected to benefit
the Company and the Subsidiaries as a whole and may contribute to an improvement
in the performance of the Company and the Subsidiaries or the Manager or its
affiliates in providing services to the Company and the Subsidiaries on terms
that no direct payment is made but instead the Manager and/or its affiliates
undertake to place business with that party.
 
(h)           In executing portfolio transactions and selecting brokers or
dealers, the Manager will use its best efforts to seek on behalf of the Company
and the Subsidiaries the best overall terms available.  In assessing the best
overall terms available for any transaction, the Manager shall consider all
factors that it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis.  In evaluating
the best overall terms available, and in selecting the broker or dealer to
execute a particular transaction, the Manager may also consider whether such
broker or dealer furnishes research and other information or services to the
Manager.
 
(i)           The Manager has no duty or obligation to seek in advance
competitive bidding for the most favorable commission rate applicable to any
particular purchase, sale or other transaction, or to select any broker-dealer
on the basis of its purported or “posted” commission rate, but will endeavor to
be aware of the current level of charges of eligible broker-dealers and to
minimize the expense incurred for effecting purchases, sales and other
transactions to the extent consistent with the interests and policies of the
Company and the Subsidiaries.  Although the Manager will generally seek
competitive commission rates, it is not required to pay the lowest commission or
commission equivalent, provided that such decision is made to promote the best
interests of the Company and the Subsidiaries.
 
(j)           As frequently as the Manager may deem necessary or advisable, or
at the direction of the Board of Directors, the Manager shall, at the sole cost
and expense of the Company and the Subsidiaries, prepare, or 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.
 
(k)           The Manager shall prepare, or cause to be prepared, at the sole
cost and expense of the Company and the Subsidiaries, all reports, financial or
otherwise, with respect to the Company and the Subsidiaries reasonably required
by the Board of Directors in order for the Company and the Subsidiaries to
comply with their Governing Instruments or any other materials required to be
filed with any governmental body or agency, and shall prepare, or cause to be
prepared, all materials and data necessary to complete such reports and other
materials including an annual audit of the Company’s and the Subsidiaries’ books
of account by a nationally recognized registered independent public accounting
firm.

 
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(l)           The Manager shall prepare regular reports for the Board of
Directors to enable the Board of Directors to review the Company’s and the
Subsidiaries’ acquisitions, portfolio composition and characteristics, credit
quality, performance and compliance with the Guidelines and policies approved by
the Board of Directors.
 
(m)         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 the Manager’s acts or
omissions which result in the right of the Company and the Subsidiaries to
terminate this Agreement pursuant to Section 15 of this Agreement, the Manager
shall not be required to expend money (“Excess Funds”) in connection with any
expenses that are required to be paid for or reimbursed by the Company and the
Subsidiaries pursuant to Section 9 in excess of that contained in any applicable
Company Account (as herein defined) or otherwise made available by the Company
and the Subsidiaries to be expended by the Manager hereunder. Failure of the
Manager to expend Excess Funds out-of-pocket shall not give rise or be a
contributing factor to the right of the Company and the Subsidiaries under
Section 13(a) of this Agreement to terminate this Agreement due to the Manager’s
unsatisfactory performance.
 
(n)          In performing its duties under this Section 2, the Manager shall be
entitled to rely reasonably on qualified experts and professionals (including
accountants, legal counsel and other service providers) hired by the Manager at
the Company’s and the Subsidiaries’ sole cost and expense.
 
Section 3.              Devotion of Time; Additional Activities.
 
(a)           The Manager and its affiliates will provide the Company and the
Subsidiaries with a management team, including a Chief Executive Officer,
President, Chief Financial Officer, Chief Investment Officer, and other support
personnel, to provide the management services to be provided by the Manager to
the Company and the Subsidiaries hereunder, the members of which team shall
devote such portion of their time to the management of the Company and the
Subsidiaries as is necessary to enable the Company and the Subsidiaries to
operate their business.
 
(b)           The Manager agrees to offer the Company and the Subsidiaries the
right to participate in all investment opportunities that the Manager determines
are appropriate for the Company and the Subsidiaries in view of their investment
objectives, policies and strategies, and other relevant factors, subject to the
exception that the Company and the Subsidiaries might not participate in each
such opportunity but will on an overall basis equitably participate with the
Manager’s other clients in relevant investment opportunities in accordance with
the Manager’s then prevailing investment allocation policy.  Nothing in this
Agreement shall (i) prevent the Manager, Pine River or any of their affiliates,
officers, directors, employees or personnel, from engaging in other businesses
or from rendering services of any kind to any other Person, including investing
in, or rendering advisory services to others investing in, any type of business
(including investments that meet the principal investment objectives of the
Company), 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, Pine River or any of their affiliates, officers,
directors, employees or personnel from buying, selling or trading any securities
or investments for their own accounts or for the account of others for whom the
Manager, Pine River or any of their affiliates, officers, directors, employees
or personnel may be acting.  When making decisions where a conflict of interest
may arise, the Manager will endeavor to allocate investment and financing
opportunities in a fair and equitable manner over time as between the Company
and the Subsidiaries and the Manager’s other clients, in each case in accordance
with the Manager’s then prevailing allocation policy.

 
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(c)           Managers, partners, officers, employees, personnel and agents of
the Manager or affiliates of the Manager may serve as directors, officers,
employees, personnel, agents, nominees or signatories for the Company and/or any
Subsidiary, to the extent permitted by their Governing Instruments or by any
resolutions duly adopted by the Board of Directors pursuant to the Company’s
Governing Instruments.  When executing documents or otherwise acting in such
capacities for the Company or the Subsidiaries, such persons shall use their
respective titles in the Company or the Subsidiaries.
 
Section 4.             Agency.  The Manager shall act as agent of the Company
and the Subsidiaries in making, acquiring, financing and disposing of
Investments, disbursing and collecting the funds of the Company and the
Subsidiaries, paying the debts and fulfilling the obligations of the Company and
the Subsidiaries, supervising the performance of professionals engaged by or on
behalf of the Company and the Subsidiaries and handling, prosecuting and
settling any claims of or against the Company and the Subsidiaries, the Board of
Directors, holders of the Company’s securities or representatives or properties
of the Company and the Subsidiaries.
 
Section 5.             Bank Accounts.  At the direction of the Board of
Directors, the Manager may establish and maintain one or more bank accounts in
the name of the Company or any Subsidiary (any such account, a “Company
Account”), and may 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;
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 6.             Records; Confidentiality.  The Manager shall maintain
appropriate books of accounts and records relating to services performed under
this Agreement, 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 upon reasonable advance notice.  The Manager shall
keep confidential any and all 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) to unaffiliated third parties except (i) with the prior written
consent of the Board of Directors; (ii) to legal counsel, accountants and other
professional advisors; (iii) to appraisers, financing sources and others in the
ordinary course of the Company’s business; (iv) to governmental officials having
jurisdiction over the Company or any Subsidiary; (v) in connection with any
governmental or regulatory filings of the Company or any Subsidiary or
disclosure or presentations to Company investors; or (vi) as required by law or
legal process to which the Manager or any Person to whom disclosure is permitted
hereunder is a party.  The foregoing shall not apply to information which has
previously become publicly available through the actions of a Person other than
the Manager not resulting from the Manager’s violation of this Section 6.  The
provisions of this Section 6 shall survive the expiration or earlier termination
of this Agreement for a period of one year.
 
Section 7.              Obligations of Manager; Restrictions.
 
(a)           The Manager shall require each seller or transferor of investment
assets to the Company and the Subsidiaries to make such representations and
warranties regarding such assets as may, in the judgment of the Manager, be
necessary and appropriate.  In addition, the Manager shall take such other
action as it deems necessary or appropriate with regard to the protection of the
Investments.

 
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(b)           The Manager shall refrain from any action that, in its sole
judgment, (i) is not in compliance with the Guidelines, (ii) would adversely and
materially affect the status of the Company as a REIT under the Code,
(iii) would adversely and materially affect the Company’s or any Subsidiary’s
status as an entity intended to be exempted or excluded from investment company
status under the Investment Company Act or (iv) would violate any law, rule or
regulation of any governmental body or agency having jurisdiction over the
Company or any Subsidiary or that would otherwise not be permitted by the
Company’s Governing Instruments.  If the Manager is ordered to take any such
action by the Board of Directors, the Manager shall promptly notify the Board of
Directors of the Manager’s judgment that such action would adversely and
materially affect such status or violate any such law, rule or regulation or the
Governing Instruments. Notwithstanding the foregoing, the Manager, its officers,
stockholders, members, managers, personnel, directors, any Person controlling or
controlled by the Manager and any Person providing sub-advisory services to the
Manager shall not be liable to the Company or any Subsidiary, the Board of
Directors, or the Company’s or any Subsidiary’s stockholders, members or
partners, for any act or omission by any such Person except as provided in
Section 11 of this Agreement.
 
(c)           The Board of Directors shall periodically review the Guidelines
and the Company’s portfolio of Investments but will not review each proposed
investment, except as otherwise provided herein.  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.  The Manager shall be permitted to rely upon the direction of the
Secretary of the Company to evidence the approval of the Board of Directors or
the Independent Directors with respect to a proposed investment.
 
(d)           Neither the Company nor the Subsidiaries shall invest in any
security structured or issued by an entity managed by the Manager or any
affiliate thereof, unless (i) the Investment is made in accordance with the
Guidelines; (ii) such Investment is approved in advance by at least one of the
Independent Directors; and (iii) the Investment is made in accordance with
applicable laws.
 
(e)           The Manager shall use its best efforts to at all times during the
term of this Agreement maintain “errors and omissions” insurance coverage and
other insurance coverage which is customarily carried by property, asset and
investment managers performing functions similar to those of the Manager under
this Agreement with respect to assets similar to the assets of the Company and
the Subsidiaries, in an amount which is comparable to that customarily
maintained by other managers or servicers of similar assets.
 
Section 8.              Compensation.
 
(a)           During the Initial Term and any Renewal Term (each as defined
below), the Company shall pay the Manager the Base Management Fee quarterly in
arrears commencing with the quarter in which this Agreement was executed (with
such initial payment pro-rated based on the number of days during such quarter
that this Agreement was in effect).
 
(b)           The Manager shall compute each installment of the Base Management
Fee within 30 days after the end of the fiscal quarter with respect to which
such installment is payable. A copy of the computations made by the Manager to
calculate such installment shall thereafter, for informational purposes only and
subject in any event to Section 13(a) of this Agreement, promptly be delivered
to the Board of Directors and, upon such delivery, payment of such installment
of the Base Management Fee shown therein shall be due and payable in cash no
later than the date which is five business days after the date of delivery to
the Board of Directors of such computations.

 
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(c)           The Base Management Fee is subject to adjustment pursuant to and
in accordance with the provisions of Section 13(a) of this Agreement.
 
Section 9.              Expenses of the Company.  The Company shall pay all of
its expenses and shall reimburse the Manager for documented expenses of the
Manager incurred on its behalf (collectively, the “Expenses”) excepting those
expenses that are specifically the responsibility of the Manager as set forth
herein.  Such costs and reimbursements shall be in amounts which are no greater
than those which would be payable to outside professionals or consultants
engaged to perform such services pursuant to agreements negotiated on an
arm’s-length basis.  Expenses include all costs and expenses which are expressly
designated elsewhere in this Agreement as the Company’s, together with the
following:
 
(i)          expenses in connection with the issuance and transaction costs
incident to the acquisition, disposition and financing of Investments;
 
(ii)         costs of legal, tax, accounting, consulting, auditing,
administrative, and other similar services rendered for the Company and the
Subsidiaries by providers retained by the Manager or, if provided by the
Manager’s personnel, in amounts which are no greater than those which would be
payable to outside professionals or consultants engaged to perform such services
pursuant to agreements negotiated on an arm’s-length basis;
 
(iii)        the compensation and expenses of the Company’s directors and the
cost of liability insurance to indemnify the Company’s directors and officers;
 
(iv)        costs associated with the establishment and maintenance of any of
the Company’s or any Subsidiary’s repurchase agreements, warehouse facilities
and other secured and unsecured forms of borrowings (including commitment fees,
accounting fees, legal fees, closing and other similar costs) or any of the
Company’s or any Subsidiary’s securities offerings;
 
(v)         expenses in connection with the application for, and participation
in, programs established by the U.S. government;
 
(vi)        expenses connected with communications to holders of the Company’s
or any Subsidiary’s securities and other bookkeeping and clerical work necessary
in maintaining relations with holders of such securities and in complying with
the continuous reporting and other requirements of governmental bodies or
agencies, including all costs of preparing and filing required reports with the
Securities and Exchange Commission, the costs payable by the Company to any
transfer agent and registrar in connection with the listing and/or trading of
the Company’s stock on any exchange, the fees payable by the Company to any such
exchange in connection with its listing, and costs of preparing, printing and
mailing the Company’s annual report to its stockholders and proxy materials with
respect to any meeting of the Company’s stockholders;
 
(vii)       costs associated with any computer software or hardware, electronic
equipment or purchased information technology services from third party vendors
that is used for the Company and the Subsidiaries;
 
(viii)      expenses incurred by managers, officers, personnel and agents of the
Manager for travel or entertainment on the Company’s behalf and other
out-of-pocket expenses incurred by managers, officers, personnel and agents of
the Manager in connection with the purchase, financing, refinancing, sale or
other disposition of an Investment or establishment and maintenance of any
repurchase agreements, warehouse facilities, borrowings under programs
established by the U.S. government, other secured and unsecured forms of
borrowings or any of the Company’s or any Subsidiary’s securities offerings;

 
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(ix)         costs and expenses incurred with respect to market information
systems and publications, research publications and materials, including
financial analytics and market data, and settlement, clearing and custodial fees
and expenses;
 
(x)          compensation and expenses of the Company’s custodian and transfer
agent, if any;
 
(xi)         the costs of maintaining compliance with all federal, state and
local rules and regulations or any other regulatory agency;
 
(xii)        all taxes and license fees;
 
(xiii)       all insurance costs incurred in connection with the operation of
the Company’s business, except for the costs attributable to the insurance that
the Manager elects to carry for itself and its personnel; provided, however,
that the Company will be responsible for its pro rata portion of the premiums
related to the Manager’s “errors and omissions” insurance coverage, as provided
below;
 
(xiv)      costs and expenses incurred in contracting with third parties,
including affiliates of the Manager, for the servicing and special servicing of
the assets of the Company and the Subsidiaries;
 
(xv)       all other costs and expenses relating to the business of the Company
and the Subsidiaries and investment operations, including the costs and expenses
of acquiring, owning, protecting, maintaining, developing and disposing of
Investments, including appraisal, valuation, reporting, audit and legal fees;
 
(xvi)      expenses relating to any office(s) or office facilities, including
disaster backup recovery sites and facilities, maintained for the Company and
the Subsidiaries or Investments separate from the office or offices of the
Manager;
 
(xvii)     expenses connected with the payments of interest, dividends or
distributions in cash or any other form authorized or caused to be made by the
Board of Directors to or on account of holders of the Company’s or any
Subsidiary’s securities, including in connection with any dividend reinvestment
plan;
 
(xviii)    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 of 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;
 
(xix)       all other expenses actually incurred by the Manager (except as
described below) which are reasonably necessary for the performance by the
Manager of its duties and functions under this Agreement; and
 
(xx)        any costs and expenses (including those described above) incurred by
a sub-adviser engaged by the Manager pursuant to Section 2(e) in connection with
the provision of sub-advisory services in respect of the Manager, including such
costs and expenses of CLA Founders LLC; provided, however, that the
reimbursement of any such costs and expenses shall be subject to the same
limitations set forth in this Agreement on the reimbursement of the costs and
expenses of the Manager.

 
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The Company shall have no obligation to reimburse the Manager for the salary,
bonus, benefit and other compensation costs of the personnel of the Manager and
its affiliates who provide services to the Company under this Agreement, except
that, the Company shall reimburse the Manager for, without duplication, (i) the
Company’s allocable share of the compensation paid by the Manager to its
personnel serving as the Company’s principal financial officer and general
counsel and personnel employed by the Manager as in-house legal, tax,
accounting, consulting, auditing, administrative, information technology,
valuation, computer programming and development and back-office resources to the
Company, and (ii) any amounts for personnel of the Manager’s affiliates arising
under the Shared Services Agreement. The Company’s share of such out of pocket
costs shall be based upon commercially reasonable estimates of the percentage of
time devoted by such personnel of the Manager and its affiliates to the
Company’s affairs. The Manager shall provide the Company with such information
as the Company may reasonably request to support the determination of the
Company’s share of such costs. The Manager shall be responsible for the
compensation paid by the Manager to its personnel serving as the Company’s Chief
Executive Officer, President, and Chief Investment Officer and the Manager’s
investment professionals.
 
In addition, the Company will be required to pay the Company’s pro rata portion
of (i) rent, telephone, utilities, office furniture, equipment, machinery and
other office, internal and overhead expenses of the Manager and its affiliates
required for the operations of the Company and the Subsidiaries and (ii)
premiums related to the “errors and omissions” insurance coverage referred to in
Section 7(e).  These expenses will be allocated between the Manager and the
Company based on the ratio of the Company’s proportion of net assets compared to
all remaining net assets managed or held by Pine River or managed or held by the
Manager as calculated at each quarter end.  The Manager and the Company will
modify this allocation methodology, subject to the Independent Directors’
approval, if the allocation becomes inequitable.
 
The Manager may, at its option, elect not to seek reimbursement for certain
expenses during a given quarterly period, which determination shall not be
deemed to construe a waiver of reimbursement for similar expenses in future
periods.  In the event that the Company’s business combination transaction (the
“Business Combination Transaction”) with Capitol Acquisition Corp., a Delaware
corporation, is consummated, the Company will reimburse the Manager for all
organizational, formation and transaction costs it has incurred on behalf of the
Company, but the Company shall not be responsible for such costs in the event
the Business Combination Transaction is not consummated.
 
The provisions of this Section 9 shall survive the expiration or earlier
termination of this Agreement to the extent such expenses have previously been
incurred or are incurred in connection with such expiration or termination.
 
Section 10.            Calculations of Expenses.  The Manager shall prepare a
statement documenting the Expenses of the Company and the Subsidiaries and the
Expenses incurred by the Manager on behalf of the Company and the Subsidiaries
during each fiscal quarter, and shall deliver such statement to the Company
within 30 days after the end of each fiscal quarter. Expenses incurred by the
Manager on behalf of the Company and the Subsidiaries shall be reimbursed by the
Company to the Manager on the fifth business day immediately following the date
of delivery of such statement; provided, however, that such reimbursements may
be offset by the Manager against amounts due to the Company and the
Subsidiaries.  The provisions of this Section 10 shall survive the expiration or
earlier termination of this Agreement.
 
 
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Section 11.            Limits of Manager Responsibility; Indemnification.
 
(a)           The Manager assumes no responsibility under this Agreement other
than to render the services called for under this Agreement 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 Section 7(b) of this Agreement.  The Manager, CLA Founders LLC, their
respective officers, stockholders, members, managers, personnel and directors,
any Person controlling or controlled by the Manager or CLA Founders LLC and any
Person providing sub-advisory services to the Manager and the managers,
officers, directors and personnel of the Manager, CLA Founders LLC and their
respective officers, members, directors, managers and personnel will not be
liable to the Company or any Subsidiary, to the Board of Directors, or the
Company’s or any Subsidiary’s stockholders, members or partners for any acts or
omissions by any such Person (including trade errors that may result from
ordinary negligence, such as errors in the investment decision making process or
in the trade process), pursuant to or in accordance with this Agreement, except
by reason of acts constituting reckless disregard of the Manager’s duties under
this Agreement which has a material adverse effect on the Company and the
Subsidiaries, willful misconduct or gross negligence, as determined by a final
non-appealable order of a court of competent jurisdiction.  The Company and the
Operating Company shall, to the full extent lawful, reimburse, indemnify and
hold the Manager, CLA Founders LLC, their respective officers, stockholders,
directors, members and personnel, any Person controlling or controlled by the
Manager or CLA Founders LLC and any Person providing sub-advisory services to
the Manager, together with the managers, officers, directors and personnel of
the Manager, CLA Founders LLC and their respective officers, members, directors,
managers and personnel (each a “Manager Indemnified Party”), harmless of and
from any and all expenses, losses, damages, liabilities, demands, charges and
claims of any nature whatsoever (including attorneys’ fees) in respect of or
arising from any acts or omissions of such Manager Indemnified Party not
constituting such Manager Indemnified Party’s reckless disregard of the
Manager’s duties under this Agreement which has a material adverse effect on the
Company and the Subsidiaries, willful misconduct or gross negligence.
 
(b)           The Manager shall, to the full extent lawful, reimburse, indemnify
and hold the Company (or any Subsidiary) and its directors and officers (each, a
“Company Indemnified Party” and together with a Manager Indemnified Party, the
“Indemnitee”), harmless of and from any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever (including
attorneys’ fees) in respect of or arising from the Manager’s reckless disregard
of the Manager’s duties under this Agreement which has a material adverse effect
on the Company and the Subsidiaries, willful misconduct or gross negligence.
 
(c)           The Indemnitee will promptly notify the party against whom
indemnity is claimed (the “Indemnitor”) of any claim for which it seeks
indemnification; provided, however, that the failure to so notify the Indemnitor
will not relieve the Indemnitor from any liability which it may have hereunder,
except to the extent such failure actually prejudices the Indemnitor.  The
Indemnitor shall have the right to assume the defense and settlement of such
claim; provided, that the Indemnitor notifies the Indemnitee of its election to
assume such defense and settlement within 30 days after the Indemnitee gives the
Indemnitor notice of the claim.  In such case, the Indemnitee will not settle or
compromise such claim, and the Indemnitor will not be liable for any such
settlement made without its prior written consent.  If the Indemnitor is
entitled to, and does, assume such defense by delivering the aforementioned
notice to the Indemnitee, the Indemnitee will (i) have the right to approve the
Indemnitor’s counsel (which approval will not be unreasonably withheld, delayed
or conditioned), (ii) be obligated to cooperate in furnishing evidence and
testimony and in any other manner in which the Indemnitor may reasonably request
and (iii) be entitled to participate in (but not control) the defense of any
such action, with its own counsel and at its own expense.

 
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Section 12.            No Joint Venture.  Nothing in this Agreement shall be
construed to make the Company (or any Subsidiary) and the Manager partners or
joint venturers or impose any liability as such on either of them.
 
Section 13.            Term; Termination.
 
(a)           Until this Agreement is terminated in accordance with its terms,
this Agreement shall be in effect until [  ], 2012 (the “Initial Term”) and
shall be automatically renewed for a one-year term (a “Renewal Term”) upon the
expiration of the Initial Term and on each anniversary date thereafter unless at
least two-thirds of all of the Independent Directors or the holders of a
majority of the outstanding shares of common stock (other than those shares held
by Pine River or its affiliates) agree that (i) there has been unsatisfactory
performance by the Manager that is materially detrimental to the Company and the
Subsidiaries or (ii) the compensation payable to the Manager hereunder is
unfair; provided that the Company shall not have the right to terminate this
Agreement under clause (ii) above if the Manager agrees to continue to provide
the services under this Agreement at a reduced fee that at least two-thirds of
all of the Independent Directors determines to be fair pursuant to the procedure
set forth below.  If the Company elects not to renew this Agreement at the
expiration of the Initial Term or any Renewal Term as set forth above, the
Company shall deliver to the Manager prior written notice (the “Termination
Notice”) of the Company’s intention not to renew this Agreement based upon the
terms set forth in this Section 13(a) not less than 180 days prior to the
expiration of the then existing term.  If the Company so elects not to renew
this Agreement, the Company shall designate the date (the “Effective Termination
Date”), not less than 180 days from the date of the notice, on which the Manager
shall cease to provide services under this Agreement, and this Agreement shall
terminate on such date; provided, however, that in the event that such
Termination Notice is given in connection with a determination that the
compensation payable to the Manager is unfair, the Manager shall have the right
to renegotiate such compensation by delivering to the Company, no fewer than 45
days prior to the prospective Effective Termination Date, written notice (any
such notice, a “Notice of Proposal to Negotiate”) of its intention to
renegotiate its compensation under this Agreement. Thereupon, the Company
(represented by the Independent Directors) and the Manager shall endeavor to
negotiate the revised compensation payable to the Manager under this Agreement.
In the event that the Manager and at least two-thirds of all of the Independent
Directors agree to the terms of the revised compensation to be payable to the
Manager within 45 days following the receipt of the Notice of Proposal to
Negotiate, the Termination Notice shall be deemed of no force and effect and
this Agreement shall continue in full force and effect on the terms stated in
this Agreement, except that the compensation payable to the Manager hereunder
shall be the revised compensation then agreed upon by the parties to this
Agreement.  The Company and the Manager agree to execute and deliver an
amendment to this Agreement setting forth such revised compensation promptly
upon reaching an agreement regarding same.  In the event that the Company and
the Manager are unable to agree to the terms of the revised compensation to be
payable to the Manager during such 45-day period, this Agreement shall
terminate, such termination to be effective on the date which is the later of
(A) 10 days following the end of such 45-day period and (B) the Effective
Termination Date originally set forth in the Termination Notice.
 
(b)           In recognition of the level of the upfront effort required by the
Manager to structure and acquire the assets of the Company and the Subsidiaries
and the commitment of resources by the Manager, in the event that this Agreement
is terminated in accordance with the provisions of Section 13(a) or Section
15(b) of this Agreement, the Company shall pay to the Manager, on the date on
which such termination is effective, a termination fee (the “Termination Fee”)
equal to three times the sum of the average annual Base Management Fee earned by
the Manager during the 24-month period immediately preceding the date of such
termination, calculated as of the end of the most recently completed fiscal
quarter prior to the date of termination.  The obligation of the Company to pay
the Termination Fee shall survive the termination of this Agreement.

 
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(c)           No later than 180 days prior to the anniversary date of this
Agreement of any year during the Initial Term or Renewal Term, the Manager may
deliver written notice to the Company informing it of the Manager’s intention to
decline to renew this Agreement, whereupon this Agreement shall not be renewed
and extended and this Agreement shall terminate effective on the anniversary
date of this Agreement next following the delivery of such notice.  The Company
is not required to pay to the Manager the Termination Fee if the Manager
terminates this Agreement pursuant to this Section 13(c).
 
(d)           If this Agreement is terminated pursuant to Section 13 or
Section 15 of this Agreement, such termination shall be without any further
liability or obligation of either party to the other, except as provided in
Sections 6, 9, 10, 13(b), 15(b), and 16 of this Agreement.  In addition,
Sections 11, 13(d) and 21 of this Agreement shall survive termination of this
Agreement.
 
Section 14.            Assignment.
 
(a)           Except as set forth in Section 14(b) of this Agreement, this
Agreement shall terminate automatically in the event of its “assignment” (as
defined under the Advisers Act), 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; provided, however, that no such consent
shall be required in the case of an assignment by the Manager to Pine River or
any of its affiliates.  Any such permitted assignment to an affiliate 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 Manager.  This Agreement shall not be assigned by the Company without the
prior written consent of the Manager, except in the case of assignment by the
Company to another REIT or other organization which is a successor (by merger,
consolidation, purchase of assets, or similar transaction) to the Company, in
which case such successor organization shall be bound under this Agreement and
by the terms of such assignment in the same manner as the Company is bound under
this Agreement.
 
(b)           Notwithstanding any provision of this Agreement, the Manager may
subcontract and assign any or all of its responsibilities under Sections 2(b),
2(c) and 2(d) of this Agreement to any of its affiliates in accordance with the
terms of this Agreement applicable to any such subcontract or assignment, and
the Company hereby consents to any such assignment and subcontracting.  In
addition, provided that the 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
the Manager under this Agreement.  In addition, the Manager may assign this
Agreement to any of its affiliates without the approval of the Independent
Directors.
 
Section 15.            Termination for Cause.
 
(a)           The Company may terminate this Agreement effective upon 30 days’
prior written notice of termination from the Company to the Manager, without
payment of any Termination Fee, if (i) the Manager, its agents or its assignees
materially breaches any provision of this Agreement and such breach shall
continue for a period of 30 days after written notice thereof specifying such
breach and requesting that the same be remedied in such 30-day period (or 90
days after written notice of such breach if the Manager takes steps to cure such
breach within 30 days of the written notice), (ii) the Manager engages in any
act of fraud, misappropriation of funds, or embezzlement against the Company or
any Subsidiary, (iii) there is an event of any gross negligence on the part of
the Manager in the performance of its duties under this Agreement, (iv) there is
a commencement of any proceeding relating to the Manager’s Bankruptcy or
insolvency, including an order for relief in an involuntary bankruptcy case or
the Manager authorizing or filing a voluntary bankruptcy petition, (v) there is
a dissolution of the Manager or (vi) the Manager is convicted of (including a
plea of nolo contendere) a felony.

 
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(b)           The Manager may terminate this Agreement effective upon 60 days’
prior written notice of termination to the Company in the event that the Company
shall default in the performance or observance of any material term, condition
or covenant contained in this Agreement and such default shall continue for a
period of 30 days after written notice thereof specifying such default and
requesting that the same be remedied in such 30-day period.  The Company is
required to pay to the Manager the Termination Fee if the termination of this
Agreement is made pursuant to this Section 15(b).
 
(c)           The Manager may terminate this Agreement, without payment of any
Termination Fee, in the event the Company becomes regulated as an “investment
company” under the Investment Company Act, with such termination deemed to have
occurred immediately prior to such event.
 
Section 16.            Action Upon Termination.  From and after the effective
date of termination of this Agreement, pursuant to Sections 13 or 15 of this
Agreement, the Manager shall not be entitled to compensation for further
services under this Agreement, but shall be paid all compensation accruing to
the date of termination and, if terminated pursuant to Section 13(a) or
Section 15(b), the applicable Termination Fee.  Upon such termination, the
Manager shall forthwith:
 
 (i)           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;
 
 (ii)           deliver to the Board of Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money held
by it, covering the period following the date of the last accounting furnished
to the Board of Directors with respect to the Company or a Subsidiary; and
 
 (iii)           deliver to the Board of Directors all property and documents of
the Company or any Subsidiary then in the custody of the Manager.
 
Section 17.            Release of Money or Other Property Upon Written
Request.  The Manager agrees that any money or other property of the Company or
any Subsidiary held by the Manager under this Agreement shall be held by the
Manager as custodian for the Company or Subsidiary, and the Manager’s records
shall be appropriately marked clearly to reflect the ownership of such money or
other property by the Company or such Subsidiary. Upon the receipt by the
Manager of a written request signed by a duly authorized officer of the Company
requesting the Manager to release to the Company or any Subsidiary any money or
other property then held by the Manager for the account of the Company or any
Subsidiary under this Agreement, the Manager shall release such money or other
property to the Company or any Subsidiary within a reasonable period of time,
but in no event later than 30 days following such request.  The Manager shall
not be liable to the Company, any Subsidiary, the Independent Directors, or the
Company’s or a Subsidiary’s stockholders, members or partners for any acts
performed or omissions to act by the Company or any Subsidiary in connection
with the money or other property released to the Company or any Subsidiary in
accordance with the second sentence of this Section 17.  The Company and any
Subsidiary shall indemnify the Manager and the other Manager Indemnified Parties
against any and all expenses, losses, damages, liabilities, demands, charges and
claims of any nature whatsoever, which arise in connection with the Manager’s
release of such money or other property to the Company or any Subsidiary in
accordance with the terms of this Section 17.  Indemnification pursuant to this
provision shall be in addition to any right of the Manager or any such other
Manager Indemnified Party to indemnification under Section 11 of this Agreement.

 
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Section 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 (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:
 
(a)           If to the Company:
 
Two Harbors Investment Corp.
601 Carlson Parkway
Suite 330
Minnetonka, MN  55305
Attention:  General Counsel
 
(b)           If to the Manager:
 
PRCM Advisers LLC
601 Carlson Parkway
Suite 330
Minnetonka, MN  55305
Attention:  General Counsel
 
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 18 for the giving of notice.
 
Section 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.
 
Section 20.           Entire Agreement.  This Agreement contains the entire
agreement and understanding among the parties hereto with respect to the subject
matter of this Agreement, 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 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.
 
Section 21.           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 CONFLICTS OF LAW PRINCIPLES TO THE CONTRARY.

 
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Section 22.            No Waiver; Cumulative Remedies.  No failure to exercise
and no delay in exercising, on the part of any 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.  No waiver of any provision hereunder shall be
effective unless it is in writing and is signed by the party asserted to have
granted such waiver.
 
Section 23.            Headings.  The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed
part of this Agreement.
 
Section 24.            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.
 
Section 25.           Severability.  Any provision of this Agreement that 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.
 
Section 26.           Gender.  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.
 
[SIGNATURE PAGE FOLLOWS]

 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
 
TWO HARBORS INVESTMENT CORP.
   
By:
/s/ Jeff Stolt
 
Name:  Jeff Stolt
 
Title:  Chief Financial Officer
   
TWO HARBORS OPERATING COMPANY LLC
   
By:
/s/ Jeff Stolt
 
Name:  Jeff Stolt
 
Title:  Authorized Signatory
   
PRCM ADVISERS LLC
   
By:
/s/ Jeff Stolt
 
Name:  Jeff Stolt
 
Title:  Chief Financial Officer

 
 

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Exhibit A
 
·
No investment shall be made that would cause the Company to fail to qualify as a
REIT for U.S. federal income tax purposes; and

·
No investment shall be made that would cause the Company to be required to
register as an investment company under the Investment Company Act.

·
The Company will primarily invest within the Company’s target assets, consisting
primarily of Agency RMBS and non-Agency RMBS; approximately 5% to 10% of the
Company’s portfolio may include financial assets other than Agency RMBS and
non-Agency RMBS.

·
Until appropriate investments can be identified, the Company may invest
available cash in interest-bearing and short-term investments, that are
consistent with (i) the Company’s intention to qualify as a REIT, and (ii) the
Company’s and each Subsidiary’s exemption from “investment company” status under
the Investment Company Act.

For purposes of the above, “Agency RMBS” means residential mortgage-backed
securities (“RMBS”) for which a U.S. government agency (including the Government
National Mortgage Association) or a federally chartered corporation (including
the Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation) guarantees payments of principal and interest on the securities and
“non-Agency RMBS” means RMBS that are not issued or guaranteed by a U.S.
government agency or a federally chartered corporation.

Exh. A-1

 
 

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