Document:

ex10-1.htm

Exhibit 10.1

 

INVESTMENT MANAGEMENT AGREEMENT

 

THIS INVESTMENT MANAGEMENT AGREEMENT (the “Agreement”) is effective as of the 11th day of February 2011 (the “Effective Date”), by and between New York Mortgage Trust Inc., a Maryland corporation (“NYMT”), and The Midway Group, LP, a Delaware limited Partnership (“Midway” or the “Investment Manager”).

 

W I T N E S S E T H

WHEREAS, NYMT has entered into an agreement with JP Morgan Chase, N.A. to serve as trustee or custodian (the “Custodian”) with respect to certain of NYMT’s assets that will be held in a separate account (the “Separate Account”); and

 

WHEREAS, NYMT wishes to appoint Midway to manage the investment and reinvestment of all of the assets held in the Separate Account subject to the investment guidelines set forth in this Agreement, and Midway desires to accept such appointment, all subject to the terms and conditions contained in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises contained herein, and other good and valuable consideration as set forth herein, the parties agree as follows:

 

	
(1)  

	
Appointment of Midway as Investment Manager.

 

NYMT hereby appoints Midway as its investment manager with respect to the assets contained in the Separate Account. As the investment manager for the Separate Account, Midway has the authority to buy, sell and trade, and engage in other transactions in, financial instruments for NYMT’s account. Midway agrees to perform each of the duties set forth herein in good faith and in accordance with commercially reasonable standards. Subject to the terms and conditions set forth in this Agreement, which includes the Schedules attached hereto, Midway hereby accepts such appointment.

 

	
(2)  

	
Duties and Authority of Investment Manager.

 

(a) Midway will provide NYMT with investment management services in accordance with the terms and conditions contained in this Agreement and the requirements of the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and other applicable laws and regulations. Under this Agreement, Midway shall have complete discretion and authority to manage the assets in the Separate Account on NYMT’s behalf and at NYMT’s risk, subject to the written guidelines governing the Separate Account set forth in Paragraph (3) of this Agreement (the “Investment Guidelines”) and the other terms and conditions in this Agreement, and is hereby appointed NYMT’s agent and Attorney-in-Fact for that purpose. As such, Midway is authorized to perform the following, at NYMT’s expense, without further approval from NYMT, except as expressly required by this Agreement or as required by law: (i) to make all investment decisions; (ii) to buy, sell and otherwise trade in securities; and (iii) to select brokers or dealers to execute securities transactions. Midway shall be responsible solely for the investment and reinvestment of assets in the Separate Account and shall have no duty to inquire into or review the management or investment of other assets of NYMT. NYMT hereby authorizes Midway to open brokerage accounts and to execute documents in the name of, binding against and on behalf of NYMT for all purposes necessary or desirable in Midway’s view to perform its obligations under this Agreement. Midway agrees to provide NYMT with a copy of any agreement that Midway executes on NYMT’s behalf within five (5) Business Days (as defined herein) after execution by both parties.

 

  

  

  

 

(b) In performing its duties and obligations under this Agreement, Midway may contract with other entities, on commercially reasonable terms, to provide services and/or support for the Separate Account.

 

	
(3)  

	
Investment Guidelines and Pari Passu Trading.

 

(a) Midway will invest the Separate Account assets as described in the section entitled “Investment Objective and Strategy” in the Private Placement Memorandum (“PPM”) for the Midway Market Neutral Fund (the “Fund”), a copy of which is set forth on Exhibit A attached hereto (the “Investment Guidelines”), subject to modification at NYMT’s direction to ensure NYMT’s continuous compliance with applicable requirements under the United States Internal Revenue Code and the rules and regulations thereunder for NYMT to maintain its status as a real estate investment trust (“REIT”) and under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and the rules and regulations thereunder for NYMT and its subsidiaries to maintain their exemption from regulation as an investment company (such REIT and Investment Company Act compliance requirements as referred to herein as the “Compliance Requirements”). To the extent that, in order to meet such Compliance Requirements, NYMT directs Midway to sell any security that has already been purchased in the Separate Account, such instruction to sell must be received by Midway no later than five (5) Business Days prior to the settlement date for the transaction. Midway agrees to use its best efforts to comply with the Investment Guidelines. NYMT acknowledges and agrees that, subject to the provisions of Paragraph (15) herein, its only recourse should Midway fail to meet the Investment Guidelines is termination of this Agreement pursuant to Paragraph (7) of this Agreement. If Midway makes any changes to the Investment Guidelines, it shall provide NYMT with the same notice and disclosure regarding such changes in the Investment Guidelines as Midway provides to investors in the Fund regarding such changes. Except to the extent necessary to comply with any applicable law, Midway shall not make any material change to the Investment Guidelines unless it has given NYMT at least seven (7) days prior written notice. Notwithstanding any changes made to the Investment Guidelines for the Fund, no changes with respect to the Investment Guidelines for the Separate Account shall be implemented unless NYMT has consented to such changes in writing, with such consent not to be unreasonably withheld. NYMT acknowledges that its failure to consent to changes that Midway implements to the Investment Guidelines relating to the Fund will result in Midway being unable to manage the Separate Account pari passu with the Fund. NYMT further agrees to indemnify exculpate, and hold harmless Midway from and against any loss or expense suffered or sustained as a result of or in connection with Midway’s following NYMT’s directive to trade, or not to trade in accordance with the Investment Guidelines.

 

(b) Subject to Paragraph (3)(a) above, Midway will manage the Separate Account assets pari passu with its management of the Fund to the extent reasonably practicable and consistent with the Investment Guidelines and Compliance Requirements for the Fund and NYMT, and the size of the Separate Account. Trades shall be allocated among NYMT, the Fund, any/or other fund or investment vehicle managed by Midway as set forth in Paragraph (9) below.

 

  

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(c) The Investment Guidelines set forth in Paragraph (3)(a), including any modifications directed by NYMT in order to satisfy the Compliance Requirements, shall be applied at the time a transaction is entered into, regardless of later market movements, and shall not be deemed breached as a result of changes in the value or status of an investment following its acquisition. In the event that the Separate Account, or any investment in the Separate Account, exceeds or otherwise fails to comply with the Investment Guidelines or any modifications directed by NYMT in order to satisfy the Compliance Requirements, Midway shall take such corrective action as it deems advisable; provided, however, that NYMT shall have the right to direct Midway to take any corrective action that NYMT deems necessary or appropriate with respect to the Separate Account in order to ensure the continued compliance with the Compliance Requirements. NYMT agrees to indemnify exculpate, and hold harmless Midway from and against any loss or expense suffered or sustained as a result of or in connection with Midway’s following NYMT’s directive to take such corrective action.

 

	
(4)  

	
Funding of the Separate Account.

 

(a) Initial Funding

 

The Separate Account shall initially be capitalized with a $24 million capital contribution by NYMT (the “Initial Investment”). The Initial Investment shall be made on the first Business Day of the month immediately following the execution of this Agreement. A Business Day is defined as any day on which the New York Stock Exchange is open for business.

 

(b) Subsequent Funding

 

NYMT intends to invest a total of $200 million, including the Initial Investment, in the Separate Account (the “Capital Commitment”) prior to the end of the Initial Term (as defined below). NYMT will use its commercially reasonable efforts to fund the Capital Commitment (each such funding a “Capital Payment”) ratably over a two-year period in amounts of $25 million per quarter (the “Capital Commitment Schedule”), subject to the investment performance, capital raising, compliance and Board approval conditions described herein (the “Capital Payment Conditions”). Subject to the Capital Payment Conditions, each Capital Payment will be made on the first Business Day of each calendar quarter, with the first such payment (after the Initial Investment) expected to occur on April 1, 2011. The cumulative amount of Capital Payments, together with the Initial Investment, that are funded shall be referred to as “Invested Capital.” Notwithstanding the foregoing, for the purposes of calculating the Management Fee, Adjusted Net Income, the weighted average of the Invested Capital, the High Water Mark and the Incentive Fee (as each such term is defined herein), the Initial Investment and each Capital Payment thereafter shall be treated as if the first 50% of such Capital Payment was invested on the first Business Day of the calendar month of the quarter in which such Capital Payment is funded and the remaining 50% of such Capital Payment was invested on the first Business Day of the second calendar month of the quarter in which such Capital Payment is funded; provided, that for Capital Payments in amounts larger than $25 million, Midway and NYMT will reach an agreement on the timing of the investment of such funds prior to funding by NYMT of the Capital Payment.

 

  

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(c) Capital Payment Conditions

 

(i) Investment Performance Condition

 

If the annualized return on Invested Capital in the Separate Account for any calendar quarter falls below 15% (the “Preferred Return,” NYMT shall have the right to elect to forego the next quarterly Capital Payment (the “Investment Performance Condition”). For example, if the annualized return for the first quarter of 2011 falls below the Preferred Return, NYMT shall have the right to elect not to make its April 1, 2011 Capital Payment, but the July 1, 2011 Capital Payment will not be affected by the first quarter 2011 return on Invested Capital.  NYMT may, in its discretion, but shall not be required to, contribute additional capital in subsequent quarters. For example, if NYMT elects to forego its April 1, 2011 Capital Payment due to the failure of the Separate Account to achieve the Preferred Return on an annualized basis for the first quarter of 2011, NYMT would, in its discretion, have the right to elect to invest additional capital above and beyond the $25 million Capital Payment amount scheduled for July 1, 2011 if Midway generates an annualized return on Invested Capital in the Separate Account equal to or greater than the Preferred Return in the second quarter of 2011. An example of the Investment Performance Condition calculation is set forth on Exhibit B.

 

(ii) Market Conditions, Regulatory Constraints and Board Approval

 

In addition to the Investment Performance Condition, the obligations of NYMT to make Capital Payments in order to fund its Capital Commitment in accordance with the Capital Commitment Schedule are subject to (a) NYMT successfully raising sufficient equity capital to allow NYMT to meet the Capital Commitment Schedule; (b) compliance by NYMT and its subsidiaries with the Compliance Requirements; and (c) approval by NYMT’s Board of Directors of the use of proceeds raised from any capital raising transaction undertaken or completed by NYMT to fund NYMT’s Capital Commitment, it being understood that the Board of Directors shall have the discretion, in the exercise of its fiduciary duties, to limit the amount of net proceeds raised by NYMT in any capital raising transaction invested by NYMT in the Separate Account.

 

(d) Capital Commitment Cancellation

 

If the cumulative return on Invested Capital within any calendar year declines by 20%, or more, NYMT shall have the right to opt out of the remaining portion of its Capital Commitment. While NYMT may opt out of its remaining Capital Commitment, it agrees that the Separate Account will not be liquidated and that NYMT will confer with Midway on the appropriate disposition of the assets in the Separate Account. Midway and NYMT must agree on the best course of action to liquidate the portfolio, a process which is not disruptive to the markets or to Midway.

 

  

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(e) Reduction of Capital

 

NYMT will have the right to redeem Invested Capital in an amount equal to the lesser of 10% of the Invested Capital or $10,000,000 as of the last calendar day of the month, upon not less than seventy-five (75) days written notice; provided that NYMT may not make more than one such redemption request in any seventy-five (75) day period. Midway will have corresponding rights to reduce and return capital in the Separate Account. All amounts returned to NYMT pursuant to this provision shall be returned in cash, and Midway shall have the sole discretion to determine which securities in the Separate Account shall be liquidated to meet the redemption. The redemption rights specified above will not be applicable to the Initial Investment during the Initial Term. However, any subsequent Capital Payments will be subject to the above redemption rights.

 

	
(5)  

	
Brokerage Services.

 

(a) General

 

Midway will utilize the same broker-dealers, banks and other counterparties (the “Counterparties”) as used from time to time for the Fund when executing transactions for the Separate Account and will have sole discretion over the selection of such Counterparties. Midway and any broker-dealer engaged by Midway is authorized to combine purchase or sale orders on behalf of the Separate Account together with orders for the Fund and/or any other funds or accounts managed by Midway (including accounts in which Midway, the broker-dealer, their respective affiliates, and/or their personnel have an interest), and to allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent basis, among such accounts in accordance with and subject to the provisions of Paragraph (9). In selecting a broker-dealer, Midway will use its reasonable efforts to obtain best execution and will take into account such relevant factors as (i) price; (ii) the broker-dealer’s facilities, reliability and financial responsibility; and (iii) the ability of the broker-dealer to effect securities transactions, particularly with regard to such aspects as timing, order size and execution of orders.

 

(b) Agency Cross Trades

 

Cross transactions are transactions between the Separate Account, on the one hand, and the Fund or another fund or account that is managed or advised by Midway or one of Midway’s other investment advisory affiliates, on the other hand (each a “Cross Transaction”). Midway is authorized to execute Cross Transactions in accordance with applicable law and Midway’s internal compliance policies. Midway agrees that it will only execute Cross Transactions when it believes that the Cross Transaction is in the best interest of both parties to the transaction. NYMT may at any time, upon written notice to Midway, revoke its consent to Midway to execute Cross Transactions. In addition, unless approved in advance by NYMT, all Cross Transactions must be effected at then-prevailing market prices.

 

  

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(c) Custodian

 

The Manager shall not be liable to NYMT for any act or omission of the Custodian.  NYMT has directed Midway to use JP Morgan Chase, N.A. as custodian for the Separate Account. The Custodian shall hold the assets in a segregated account. At no time will Midway have custody or physical control of the assets in the Separate Account. NYMT will instruct the Custodian to provide Midway with statements of account on a monthly basis. In addition, Midway shall have no responsibility or liability with respect to any of the trustee/custodial arrangements or the acts, omissions, or other conduct of the Custodian. Midway will provide reasonable assistance to the Custodian in providing confirmations and periodic reports on Separate Account activity to NYMT. Unless NYMT directs otherwise, these confirmations and statements may be provided in an electronic format.

 

	
(6)  

	
Representations and Warranties.

 

(a) Of both parties.

 

Each of NYMT and Midway represents and warrants to the other that:

 

(i) It is duly formed, validly existing and in good standing under the laws of its jurisdiction of formation and is qualified to transaction business and is in good standing in each other jurisdiction in which the nature or conduct of its business requires such qualification and good standing, except where the failure to be so qualified and in good standing would not materially and adversely affect the rights, power and authority of the party to enter into this Agreement and perform its obligations hereunder.

 

(ii) It has full power and authority to execute and deliver this Agreement and perform its obligations hereunder. This Agreement has been duly and validly authorized, executed and delivered on its behalf and is a binding and enforceable agreement in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors and general principles of equity, Neither its entry into this Agreement nor its performance of its obligations hereunder is or will be in violation or conflict with its organizational documents or any provision of any applicable law, regulation, rule or policy, or any agreement, indenture or any other instrument to which it is a party or by which it is bound.

 

(iii) It has all governmental and regulatory licenses, registrations, consents, permits and approvals required to perform its obligations under this Agreement, other than any such approval as may be expressly specified herein as a condition to the performance of any of its obligations to be performed hereunder after the date hereof, and has at all times complied and will continue to comply with all laws, regulations and rules applicable to its business. Notwithstanding the foregoing, NYMT acknowledges that Midway is not currently registered with the Securities and Exchange Commission as an investment adviser under the Advisers Act; however, it does intend to so register as an investment adviser in 2011.

 

  

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(iv) There are no pending or, to such party’s knowledge, threatened actions, suits, proceedings or investigations before or by any court, governmental or administrative authority or agency, board of trade, self-regulatory body, securities exchange or arbitration panel to which it or any of its subsidiaries or principals is a party or to which its assets or business are subject, which could reasonably be expected to have a material and adverse effect on its condition (financial or otherwise), business or prospects or which could reasonably be expected to materially impair its ability to perform its obligations hereunder.

 

(v) If, at any time during the term of this Agreement, it discovers any facts or circumstances that would make any of the foregoing representations and warranties inaccurate, untrue or incomplete in any material respect, it will provide prompt written notification to the other party of such facts or circumstances in reasonable detail.

 

(b) Of Midway.

 

Midway represents and warrants to NYMT that:

 

(i) It is currently in the process of revising the PPM regarding the Fund. Midway represents and warrants to NYMT that such revisions will not materially alter the Investment Strategy as currently described therein. Midway further represents and warrants that, once the revisions to the PPM are completed, all information contained in the PPM regarding Midway and the Investment Strategy will be true and complete as of the date on the cover page of the PPM. Midway shall have no ongoing obligation to update and/or revise the PPM after that date.

 

(ii) It will not undertake trading of commodities until any necessary registrations have been obtained.

 

(c) Of NYMT.

 

NYMT represents and warrants to Midway that:

 

(i) It has such experience and knowledge in financial and business matters that it is capable of evaluating the merits and risks of its investments and is able to bear such risks, and has obtained, in its judgment, sufficient information to evaluate the risks and merits of its own investments. NYMT has evaluated the risks of the Investment Guidelines, including but not limited to those disclosed in the PPM under “Risk Factors,” and has determined for itself that such investments are suitable.

 

(ii) NYMT is an “accredited investor” as defined under Regulation D under the Securities Act of 1933, as amended, and a “qualified eligible person” as defined in Rule 4.7 promulgated under the Commodity Exchange Act, as amended (the “CE Act”), and an “eligible contract participant” as defined in Section 1a(12) of the CE Act.

 

  

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(iii) None of its assets are considered assets of an employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended.

 

(iv) It has adopted and implemented anti-money laundering policies, procedures and controls in order to comply with, and will continue to comply in all respects with, the requirements of applicable anti-money laundering laws, rules and regulations (including, but not limited to, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA Patriot”) Act of 2001 and the Bank Secrecy Act of 1970, as amended) and will provide a copy thereof to Midway upon request. NYMT is not involved in any anti-money laundering schemes, and the performance by Midway hereunder will not breach any applicable laws, rules and regulations designed to avoid money laundering. NYMT will deliver any further documentation reasonably requested by Midway in connection with Midway’s efforts to comply with applicable anti-money laundering laws, rules and regulations and the U.S. Government’s anti-terrorism policy as set out in the recently adopted USA Patriot Act.

 

(v) It understands the methods of compensation under this Agreement and acknowledges that this Agreement constitutes an arm’s length agreement with respect to the receipt by Midway of the Management Fee and the Incentive Fee.

 

(vi) It has not relied upon any information or statements at variance with, or contrary to, anything set forth either in this Agreement or in sections of the PPM expressly referred to herein in deciding to execute this Agreement and to open the Separate Account; it understands that information in the PPM other than those sections expressly referred to herein should not be considered applicable to the Separate Account and that Midway is available to answer any questions NYMT may have prior to operating or during the trading of the Separate Account.

 

(vii) Because all assets in the Separate Account will be assets of NYMT, NYMT will have full responsibility for the payment of all taxes due with respect to investment gains and income earned in the Separate Account.

 

	
(7)  

	
Term and Termination.

 

(a) Term and Termination

 

This Agreement shall continue in full force and effect from the Effective Date for a period of two (2) years (the “Initial Term”). Thereafter, the Agreement shall automatically renew for successive one (1) year terms (each a “Renewal Term”, and collectively with the Initial Term, referred to herein as the “Term”), unless either party provides the other with at least six (6) months advance written notice of its intent to terminate the Agreement at the end of the then current Term. The termination of this Agreement shall not affect any obligation incurred or liability of any of the parties hereto with respect to any transaction entered into, or liability or obligation incurred or assumed hereunder or otherwise, in each case, in good faith prior to such termination.

 

  

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(b) Transition of Separate Account Upon Termination

 

If the Agreement is terminated by NYMT, Midway will liquidate the assets in the Separate Account in an orderly fashion, in its sole discretion. If the Agreement is terminated by Midway, Midway will, at NYMT’s direction, either (i) liquidate the assets in the Separate Account in an orderly fashion; (ii) transfer the assets in the Separate Account to another investment manager designated by NYMT; or (iii) transfer the assets in the Separate Account to an NYMT account designated by NYMT. The Incentive Fee (as defined in Paragraph (8)(b) below) payable by NYMT will be payable as follows: (i) in the event of an orderly liquidation by Midway of the assets in the Separate Account, the Incentive Fee shall be based upon the net sale proceeds received from the liquidation of all such assets; and (ii) in the event the assets in the Separate Account are transferred to another investment manager or to NYMT, the Incentive Fee shall be based upon the fair market value of the assets as of the date of the effective date of the termination as determined in accordance with the valuation procedures provided below with respect to quarterly performance numbers. For the avoidance of doubt the Preferred Return and the Hurdle Rate shall cease to accrue as of the date notice of termination is given. Midway will continue to receive Management Fees on that portion of the capital that is still invested (as opposed to liquidated).

 

	
(8)  

	
Fees and Expenses.

 

(a) Management Fee

 

NYMT will pay Midway a monthly management fee (the “Management Fee”) for its investment management services. The Management Fee shall be paid monthly in arrears in an amount equal to the product of (i) 1.50% of the amount of Invested Capital in the Separate Account on the last Business Day of the previous month, multiplied by (ii) 1/12th. As set forth in Paragraph (4)(b), for the purposes of determining the Invested Capital in the Separate Account at any given time, the parties agree that the Capital Commitment Schedule set forth therein shall govern. Client authorizes the Custodian of the assets in the Separate Account to pay the Management Fee for each month directly to Midway. Midway will submit to NYMT a copy of its statement for the Management Fee at the same time the statement is submitted to the Custodian. The statement will reflect the amount of the fee, the value of NYMT’s Invested Capital on which the fee was based, and the manner in which the fee was calculated. Midway will also instruct the Custodian to send to NYMT a statement, at least monthly, indicating all amounts disbursed from the Separate Account including the Management Fee paid to Midway. NYMT is responsible for verifying the accuracy of the fee calculation, and for advising Midway within fifteen (15) days of its receipt of such statement if it believes that the Management Fee is not correct. If NYMT does not object in writing to the calculation within fifteen (15) Business Days of receipt, the calculation shall be deemed accepted.

 

  

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(b) Incentive Fee

 

Midway will be entitled to a quarterly incentive fee (the “Incentive Fee”) that is calculated monthly and payable quarterly in arrears. The Incentive Fee calculation shall be based upon the total market value of the net Invested Capital in the Separate Account on the last Business Day of the quarter, subject to a high water mark equal to a 10% return on Invested Capital (the “High Water Mark”), and shall be payable in an amount equal to 40% of the dollar amount by which Adjusted Net Income (as defined below) attributable to the Separate Account, on a calendar 12-month basis and before the Incentive Fee, exceeds an annual 15% rate of return on Invested Capital (the “Hurdle Rate”), with the return rate for each calendar 12-month period (the “Calculation Period”) determined by dividing (i) the Adjusted Net Income for the Calculation Period by (ii) the weighted average of the Invested Capital paid into the Separate Account during the Calculation Period. For the initial twelve (12) months, Adjusted Net Income will be calculated on the basis of each of the previously completed months on an annualized basis.

 

“Adjusted Net Income” is defined as net income (loss) calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), excluding any unrealized gains and losses, after giving effect to all expenses as set forth in Paragraphs (8)(c) and (8)(d) below.

 

All securities held in the Separate Account shall be valued in accordance with GAAP, and in a manner consistent with the PPM for the Fund. As set forth in Paragraph (4)(b), for the purposes of determining the Invested Capital in the Separate Account at any given time, the parties agree that the Capital Commitment Schedule set forth herein shall govern.

 

Like the Hurdle Rate, which is calculated on a calendar twelve (12) month basis, the High Water Mark is calculated on a calendar twelve (12) month basis, and shall reset every twenty-four (24) months. The High Water Mark will be a static dollar figure that Midway will be required to recoup, to the extent there was a deficit in the prior High Water Mark calculation period before it can receive an Incentive Fee. For example, if in 2011, NYMT earns a return on Invested Capital in the Separate Account of 8%, which is 2% short of the High Water Mark, and this 2% deficit is equivalent to a dollar amount of $2 million, Midway would have to earn net profit of $2 million to get above the High Water Mark before it would be eligible again to receive an Incentive Fee. This is independent of the new High Water Mark, which will have to be reached in the following year(s). An illustration of how the High Water Mark is calculated is included on Exhibit B.

 

(c) Setup Expenses

 

NYMT will pay for all Separate Account setup costs including account fee setup costs, repurchase agreement establishment costs, legal, software and other start-up type costs. All expenses above $50,000 will be approved by NYMT prior to incurrence. Upon request, Midway shall provide NYMT with commercially reasonable written support for expenses incurred.

 

  

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(d) On-Going Expenses

 

NYMT acknowledges that the Separate Account will be charged for all direct operating and transaction costs and expenses incurred in connection with the management and administration of the Separate Account, including clerical, mailing, printing, duplication and other operational expenses, clearing fees, broker fees, repurchase interest expense, interest and commitment fees incurred in connection with other investment-related financing costs and other similar costs, as well as a pro rata portion of portfolio management software expenses and data fees incurred by Midway, allocated based on Invested Capital under management.

 

	
(9)  

	
Other Clients and Financial Activities.

 

Midway’s services are not exclusive. In addition to managing the Separate Account, Midway manages the Fund and other private investment vehicles and either Midway or an affiliate may, in the future, manage other private investment funds or separate accounts. Midway and/or its affiliates may also have an economic interest in other accounts. Some of these accounts or entities may seek to acquire securities of an issuer in which the Separate Account has invested and holds an interest or to acquire from the Separate Account some or all of the securities of a particular issuer or may seek to dispose of securities the Separate Account is seeking to acquire. Other accounts and persons advised by Midway may have different investment objectives or considerations than the Separate Account. Decisions as to purchases and sales for each account are made separately and independently in light of the objectives and purposes of each account and may differ, depending on the account. In addition, Midway does not devote its full time to the management of any account and devotes such time and attention to any account as it, in its sole discretion, deems necessary for the management of such account.

 

Although Midway seeks to allocate investment opportunities in a manner which it believes to be in the best interests of all the accounts involved and seeks to allocate investment opportunities believed to be appropriate for both the Separate Account, the Fund and the other investment funds and/or accounts that are managed by Midway on an equitable basis, there can be no assurance that a particular investment opportunity will be allocated in any particular manner.

 

NYMT understands that the ability of Midway or its affiliates to effect and/or recommend certain transactions may be restricted by applicable regulatory requirements in the United States and/or other countries or jurisdictions.

 

Notwithstanding the foregoing, during the Initial Term, Midway agrees not to establish a separate account with any other publicly-listed residential or commercial mortgage REIT as long as NYMT has capital invested in the Separate Account.

 

  

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(10)  

	
Performance Reports.

 

Monthly performance numbers for the Separate Account will be supplied to NYMT within ten (10) Business Days after month end. These performance numbers do not require any independent marks. Quarterly performance numbers will be supplied to NYMT within twenty (20) days after quarter end. For illiquid securities, at least 70% will have at least two (2) independent dealer marks, and up to 30% can have one (1) independent dealer mark. Annual performance numbers for the Separate Account will be supplied to NYMT within thirty (30) days after year-end. Each of the illiquid securities must have at least two (2) independent dealer marks.

 

To assist institutional equity investors in understanding the basic nature of the strategy employed in the Separate Account, Midway agrees to make a senior portfolio manager available periodically, with at least five (5) Business Days’ advance notice, to participate in conference calls.

 

	
(11)  

	
IPO Right of First Refusal

 

From the Effective Date of this Agreement, until the Agreement is terminated by either party, NYMT will have a right of first refusal to serve as the primary sponsor of Midway, or an external vehicle wholly or partially managed by Midway, in any initial public offering, should Midway in its sole discretion elect to make such an offering.

 

	
(12)  

	
Confidentiality

 

NYMT agrees that it and its directors, officers, shareholders and employees (its “affiliates”) will keep confidential and will not disclose to any third party, other than NYMT’s accountants, legal counsel, financial advisors, consultants and other representatives (“Representatives”) whom NYMT determines have a need to know such information and then only to the extent such representatives agree to keep the information confidential, the details of or any other information pertaining to this Agreement, the terms of the Agreement, Midway’s identity as a party to this Agreement, Midway’s trading or investment advice or activities pertaining to the Separate Account (including, without limitation, the Investment Guidelines of the PPM for the Fund, positions held or taken and financial instruments traded in the Separate Account) or the dollar amount committed to the Separate Account (the “Confidential information”), except to the extent NYMT determines that such disclosure is (a) required in order to enable NYMT to comply with its disclosure and reporting obligations under the federal securities laws or to the extent otherwise required by law or (b) advisable, based on the advice of NYMT’s underwriters or financial advisors, for marketing purposes in connection with any capital raising transaction undertaken by NYMT. NYMT further agrees that NYMT and its affiliates will not otherwise use such information for its or their own gain or benefit (other than as provided in the previous sentence), including trading for its or their own account. If NYMT determines that such disclosure is required or advisable pursuant to the first sentence of this paragraph, it will, to the extent legally permitted to do so, provide Midway with reasonable advance notice of its intent to make the disclosure, which in no event shall be less than two (2) Business Days, and will consult with Midway regarding the purpose and content of such disclosure, subject to the understanding and agreement of the parties hereto that NYMT shall have sole discretion to make the final determination regarding such disclosure. NYMT agrees that, unless required by law, judicial order, subpoena or in connection with any regulatory investigation or inquiry, NYMT and its affiliates will not disclose to any third party, other than NYMT’s Representatives whom NYMT determines have a need to know such information and then only to the extent such Representatives agree to keep the information confidential, information regarding individual trades or trading activity or strategies pertaining to the Separate Account (as distinguished from the broader investment strategy relating to the Separate Account) undertaken by Midway in the Separate Account. For the avoidance of doubt, except to the extent set forth in the first sentence of this Paragraph (12), with respect to the Investment Guidelines of the PPM for the Fund, under no circumstances shall NYMT disclose any information regarding the Fund and/or any other fund managed by Midway.

 

  

- 12 -

  

 

To the extent that NYMT elects to disclose the performance of the Separate Account, it shall either do so using only materials prepared or approved by Midway or, if it elects not to use materials prepared or approved by Midway, then NYMT agrees to indemnify, exculpate, and hold harmless Midway from and against any loss, damages or expense suffered or sustained as a result of or in connection with NYMT’s disclosure of such performance.

 

NYMT expressly agrees that the obligations set forth herein are necessary and reasonable to protect Midway, and further agrees to notify Midway of any breach of its obligations under Paragraph (12) within two (2) Business Days of becoming aware of the same. NYMT expressly agrees and acknowledges that monetary damages may be inadequate to compensate Midway for any breach of any covenant or agreement set forth in this Paragraph (12). NYMT hereby agrees and acknowledges that any such violation or threatened violation may cause irreparable injury to Midway and that, in addition to any other remedies that may be available, in law, in equity or otherwise, Midway will be entitled to injunctive relief against any breach or threatened breach of any terms set forth in this Paragraph (12) or the continuation of any such breach, without the necessity of proving actual damages. NYMT further agrees that it will indemnify and hold harmless Midway for any losses, costs, damages, liabilities or expenses (including reasonable fees and expenses of counsel) caused by or resulting from any use or disclosure by NYMT or its affiliates of the confidential information.

 

In connection with any representative client listing, marketing and/or similar materials, Midway may include NYMT’s name, the material terms of this Agreement and the investment products/strategies provided by Midway to NYMT provided that Midway provides NYMT with reasonable advance notice, which in no event shall be less than two (2) Business Days, of its intent to make such disclosure and consults with NYMT regarding the purpose and content of such disclosure, subject to the understanding and agreement of the parties hereto that Midway shall have discretion to make the final determination regarding such disclosure. In addition, if either NYMT has itself publicly disclosed the material terms of this Agreement, or Midway, in its sole discretion, determines that it is required to make such disclosure to satisfy its own regulatory obligations, Midway shall also be permitted to disclose the amount of NYMT’s assets under management in the Separate Account, in either case provided that it provides NYMT with reasonable advance notice, which in no event shall be less than two (2) Business Days, of its intent to make such disclosure and consults with NYMT regarding the purpose and content of such disclosure, subject to the understanding and agreement of the parties hereto that Midway shall have discretion to make the final determination regarding such disclosure.

 

  

- 13 -

  

 

Unless NYMT instructs Midway otherwise, communications and other documents and/or reports may be provided to NYMT in an electronic format. NYMT may revoke this consent at any time upon written notice to Midway.

 

	
(13)  

	
Track Record

 

NYMT acknowledges that Midway owns all rights and interest in the historic performance of the Separate Account achieved from the Effective Date of this Agreement, that this is the performance history of Midway and/or its affiliates, and NYMT and its affiliates hereby release Midway and its affiliates from any claims that it owns, is responsible for generating or, subject to the provisions of Paragraph (12) hereof, is otherwise entitled to use such performance history.

 

Notwithstanding the foregoing, if Midway elects to disclose the investment performance of the Separate Account in any marketing materials at any time during the Term of the Agreement, it shall have full discretion to do so, provided that it provides NYMT with reasonable advance notice, which in no event shall be less than two (2) Business Days, of its intent to make such disclosure and consults with NYMT regarding the purpose and content of such disclosure, subject to the understanding and agreement of the parties hereto that Midway shall have discretion to make the final determination regarding such disclosure.

 

	
(14)  

	
Proxy Voting

 

Unless otherwise agreed in writing, Midway shall be responsible for exercising any voting rights, consents, authorizations, elections or tender decisions, for securities held in the Separate Account, provided that Midway timely receives proxies or similar materials relating to such securities. Midway may use an external service provider in fulfilling its obligations under this section. Midway will not advise or act for NYMT in legal proceedings, including class action litigations and bankruptcies, involving securities purchased in the Separate Account.

 

	
(15)  

	
Liability and Indemnification

 

(a) Neither Midway nor any of its partners, officers, affiliates, employees and agents or the legal representatives of any of them (the “Manager Parties”) shall be liable to NYMT hereunder for any action taken or omitted to be taken or any judgment made honestly and in good faith, in the absence of gross negligence, fraud or willful misconduct. The Manager Parties shall not be liable for the negligence, dishonesty or bad faith of any agent, provided that such agent was selected, engaged or retained by the Manager with reasonable care. The Manager may consult with counsel and accountants in respect of its obligations under this Agreement and be fully protected and justified in any action or inaction which is taken in accordance with the advice or opinion of such counsel or accountants. All trading activity on behalf of the Separate Accounts shall be for the account and risk of NYMT, and, except as otherwise provided herein, Midway and its affiliates and their respective officers, directors, managers, members, employees and agents (the “Manager Parties”) shall not incur any liability for trading profits or losses resulting therefrom, or any expenses related thereto. This Paragraph 15 shall be in addition to, and not limit, any other provision of this Agreement which relieves Midway of any liability.

 

  

- 14 -

  

 

(b) NYMT will exculpate, indemnify and hold harmless the Manager Parties (each, a “Manager Indemnified Person”) from and against any loss or expense suffered or sustained as a result of or in connection with Midway’s or their performance of Midway’s or their obligations hereunder, including, without limitation, any judgment, settlement, reasonable attorneys’ fees and other costs and expenses incurred in connection with the defense of any actual or threatened action or proceeding (collectively, “Losses”), provided such Manager Indemnified Person acted honestly and in good faith, and, in the case of criminal proceedings, the Manager Indemnified Person had no reasonable cause to believe such action or inaction was unlawful. No indemnification may be made and each Manager Indemnified Person shall reimburse NYMT to the extent of any indemnification previously made in respect of any claim, issue or matter as to which the Manager Indemnified Person shall have been adjudged to be liable for gross negligence, fraud or willful misconduct in the performance of its duties to NYMT hereunder or would not otherwise be entitled to be held harmless under Paragraph 15 hereof unless, and only to the extent that, the court in which or the panel before which such action or suit was brought determines that in view of all the circumstances of the case, despite the adjudication of liability the indemnified party is fairly and reasonably entitled to indemnity for those expenses which the court deems proper.

 

(c) Promptly after receipt by an Indemnified Person of notice of the commencement of an action, claim or proceeding as to which a claim for indemnification under this Paragraph 15 may be made, the Indemnified Person shall notify the Indemnifying Person in writing of the commencement of such action, claim or proceeding; but the omission so to notify the Indemnifying Person shall not relieve the Indemnifying Person from any liability which it may have to the Indemnified Party unless the failure to so notify the Indemnifying Person has a materially prejudicial effect against the Indemnifying Person.

 

	
(16)  

	
Notices

 

Any communication, notice or demand which any party may be required or may desire to give or serve upon the other party shall be in writing and delivered by courier service, postage prepaid mail or fax to the address set forth below or a substituted address for which notice has been given in accordance with this provision and shall be effective when delivered by hand via courier service, three (3) days after being mailed by certified mail, and in the instance of fax notice, when the transmitting machine signals the successful transmission of the fax between 9:00 a.m. and 5:00 p.m. on a Business Day or at 9:00 a.m. on the following Business Day if transmission is not within such hours on a Business Day. In addition, any communication, notice or demand which any party may be required or may desire to give or serve upon the other party may be made or given in electronic .pdf form through an email transmission addressed to the email address shown below for the recipient, provided the sender does not receive any message indicating that the email transmission was not delivered successfully.

 

  

- 15 -

  

 

If to Midway:

 

Omar Qaiser

 

Chief Financial Officer

 

The Midway Group, LP

 

33 Whitehall Street, 22nd Floor

 

New York, New York 10004

 

Telephone: Facsimile: (212) 509-2570

 

E-Mail:  Omar@themidwaygroup.com

 

With a copy to: Wendy A. Lurie, Esq., General Counsel

 

E-Mail:  Wlurie@comcast.net

 

If to NYMT:

 

Steven R. Mumma

 

Chief Executive Officer

 

New York Mortgage Trust, Inc.

 

52 Vanderbilt Avenue Suite 403

 

New York New York 10017

 

Telephone: (212)792-1019

 

Facsimile: (212)655-6269

 

Email:  smumma@nymtrust.com

 

With a copy to:  Daniel M. LeBey, Esq. of Email: dlebey@hunton.com

 

	
(17)  

	
Governing Law

 

This Agreement shall be governed by and construed under the laws of the State of New York without regard to choice of law principles

 

	
(18)  

	
Entire Agreement; Severability

 

This Agreement represents the entire Agreement between the parties and supersedes all prior agreements with regard to the matters described herein and may not be modified or amended except by writing signed by all parties. In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed, or if any such provision is held invalid by a court with jurisdiction over the parties to this Agreement, and the subject matter of this Agreement, (i) such provision will be deemed to be restated to reflect as nearly as possible the original intentions of the parties in accordance with applicable law, and (ii) the remaining terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect.

 

  

- 16 -

  

 

	
(19)  

	
Arbitration

 

Any controversy or dispute between the parties arising out of any of the terms or conditions of this Agreement shall be submitted to an independent professional arbitration association in New York. Any arbitrator(s) selected must have significant arbitration experience relating to the securities industry. The parties shall select an arbitrator by mutual agreement within thirty (30) days of the date of the demand for arbitration. If the parties are unable to agree on the selection of an arbitrator within such time, each party shall select an arbitrator and the two arbitrators shall select a third arbitrator. Any of the two of the three arbitrators that agree shall decide the matter. The cost of the arbitration shall be borne equally by the parties, unless the arbitrator(s) order otherwise. The arbitration shall be binding with no right of appeal.

 

	
(20)  

	
Paragraph Headings

 

Paragraph headings are for convenience only and shall not be relied upon in construing this Agreement.

 

	
(21)  

	
Independence

 

Except as expressly provided herein, Midway is an independent contractor and this Agreement does not establish a joint venture or partnership between Midway and NYMT nor does it authorize any party to act as general agent, or to enter into any contract or other agreement on behalf of any other party except as specifically provided herein.

 

	
(22)  

	
Counterparts

 

This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed a single agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

  

- 17 -

  

 

IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first set forth above.

 

	 	
THE MIDWAY GROUP, LP

	 
	 	 	 	 
	
 

	
By: 

	/s/ Omar Qaiser	 
	 	 	
Omar Qaiser

	 
	 	 	
Chief Financial Officer

	 
	 	 	 	 

 

	 	
NEW YORK MORTGAGE TRUST, INC.

	 
	 	 	 	 
	
 

	
By: 

	/s/ Steven R. Mumma      	 
	 	 	
Steven R. Mumma

	 
	 	 	
Chief Executive Officer

	 
	 	 	 	 

                                                  

  

- 18 -

  

 

Exhibit A

 

PPM Investment Guidelines

 

As of August 2008

 

INVESTMENT OBJECTIVE AND STRATEGY

 

The methods and strategies described below are intended as generalities, are not comprehensive, and are intended to give the Manager broad discretion in identifying investment and trading opportunities. The Manager has the right to alter its investment and trading strategies and priorities without prior notice to the Company and the Members if it believes that such changes are appropriate in view of the current or expected market, business or economic conditions.

 

Investment Objective

 

The Master Fund’s (and through its investment in the Master Fund, the Company’s) investment objective is to achieve long-term capital appreciation while emphasizing preservation of capital through the investment in fixed-income securities and other related Financial Instruments.

 

The Master Fund will invest primarily in mortgage-related securities, contract rights and derivatives, including mortgage-backed securities, CMOs, REMICs, SMBSs (such as agency and non-agency IOs and POs) and other derivative instruments. The Master Fund may also invest a portion of its assets in other types of U.S. and non-U.S. sovereign debt instruments and other investment-grade debt instruments and their related currencies as well as lower-grade securities. The Master Fund may utilize other securities, options, cash instruments, interest rate swaps, mortgage servicing rights, futures and other derivatives for hedging purposes.

 

Due to the nature of the Master Fund’s investment program, the Master Fund may be unable to immediately invest its cash in Financial Instruments. Uninvested cash will be held in an interest-bearing account or otherwise be invested in highly-liquid cash equivalents.

 

Description of Investments

 

Mortgage-Related Securities. A mortgage-related security is an interest in a pool of mortgages. Most mortgage-related securities are mortgage pass-through securities, which means that they provide investors with payments consisting of both interest and principal as the mortgages in the underlying mortgage pool are paid off. Other mortgage-related securities include collateralized mortgage obligations, securities issued through REMICs and SMBSs.

 

  

  

  

 

Mortgage Pass-Through Securities. Mortgage pass-through securities may be issued or guaranteed by U.S. government agencies or instrumentalities, such as the Government National Mortgage Association (“Ginnie Mae” or “GNMA”), the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”), or by private originators of or investors in mortgage loans, such as banks, mortgage lenders and other financial institutions. Payments of principal and interest on Certificates issued by GNMA (but not the market value of the Certificates themselves) are guaranteed by the full faith and credit of the U.S. Government. FNMA and FHLMC obligations are not backed by the full faith and credit of the U.S. Government, but are supported by the instrumentalities’ right to borrow from the U.S. Treasury. Mortgage pass-through securities issued by private (non-agency) issuers may have other forms of credit enhancement.

 

Collateralized Mortgage Obligations. A CMO is a debt security that is backed by a portfolio of mortgages or mortgage-backed securities. The issuer’s obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. Also included within the category of CMOs are PAC (Planned Amortization Class) Bonds, which are a type of CMO tranche or series designed to provide relatively predictable payments of principal provided that, among other things, the actual prepayment experience on the underlying mortgage loans falls within a predefined range.

 

Real Estate Mortgage Investment Conduits. A REMIC is a trust, partnership, corporation, association or segregated pool of mortgages which has elected and qualified to be treated as a REMIC under applicable U.S. tax rules. A REMIC must consist of one or more classes of “regular interests,” some of which may be adjustable rate, and a single class of “residual interests.” The different classes may have different payment terms and rankings in terms of priority. To qualify as a REMIC, substantially all the assets of the entity must be assets principally secured, directly or indirectly, by interests in real property.

 

Stripped Mortgage-Backed Securities. SMBSs are securities representing interests in a pool of mortgages the cash flow of which has been separated into its interest and principal components. IOs (interest only securities) receive the interest portion of the cash flow while POs (principal only securities) receive the principal portion. SMBSs may be issued by U.S. government agencies or by private (non-agency) issuers similar to those described with respect to CMOs and REMICs.

 

CMO Residuals. The cash flow generated by the mortgage loans underlying a series of CMOs is applied first to make required payments of principal of and interest on the CMOs and second, if applicable, to pay the related administrative expenses of the issuer. The residual in a CMO structure generally represents the interest in any excess cash flow remaining after making the foregoing payments, including mortgage servicing contracts. The Master Fund may fail to recoup fully its initial investment in a CMO residual. Some CMO residuals are subject to certain restrictions on transferability and may have adverse tax consequences if held by a non-U.S. person. Ownership of certain CMO residuals imposes liability on the purchaser for certain of the expenses of the related CMO issuer.

 

Other Derivative Instruments. It is likely that other forms of mortgage-related securities will be developed in the future. The Manager also expects that markets for mortgage-related securities and derivatives outside the United States will develop further. The Master Fund has complete flexibility to invest in any such securities and derivative instruments which may be developed and which may involve additional risks not described herein.

 

  

- 2 -

  

 

Reverse Repurchase Agreements. The Master Fund leverages its investments by entering into reverse repurchase agreements with respect to the types of securities in which it invests.  A reverse repurchase agreement arises when the Master Fund sells a security to a bank or brokerage firm and simultaneously agrees to repurchase it on an agreed-upon future date. The repurchase price is greater than the sale price, reflecting an agreed-upon market rate which is effective for the period of time the buyer’s money is invested in the security and which is not related to the coupon rate on the purchased security. The Master Fund might suffer a loss in the event of a bankruptcy or default of a bank or brokerage firm with which the Master Fund entered into a reverse repurchase agreement.

 

Financial Futures Contracts. The Master Fund may purchase and sell financial futures contracts from time to time in order to hedge all or part of its underlying portfolio of mortgage-related securities, although it is not obligated to do so. Financial futures contracts are contracts for the future delivery of a financial instrument, such as a U.S. Treasury bill or bond. Financial futures contracts combine the features of traditional commodity futures trading with trading in government securities and other interest rate sensitive instruments. The Master Fund may hedge against the possibility of an increase or decrease in interest rates adversely affecting the value of securities held in its portfolio by purchasing or selling a futures contract on a specific debt security whose price is expected to reflect changes in interest rates. However, if the Master Fund anticipates an increase in interest rates and rates decrease instead, the Master Fund will lose part or all of the benefit of the increased value of the securities which it has hedged because it will have offsetting losses in its futures position. In addition, in such situations, if the Master Fund has insufficient cash, it may have to sell Financial Instruments to meet daily variation margin requirements at a time when it may be disadvantageous to do so.

 

Option Trading. In general, an option gives the trader the right to acquire (“call option”) or dispose of (“put option”) a security or commodity futures contract at a fixed price before a specified date in the future. The Master Fund may, but is not obligated to, purchase call options on financial futures contracts to hedge against a decline in interest rates and/or purchase put options on financial futures contracts to hedge its portfolio securities against the risk of rising interest rates, although no assurance can be given that there will be a correlation between price movements in the options on financial futures and price movements in the portfolio securities of the Master Fund which are the subject of the hedge. Option trading is highly leveraged, since the option buyer must put up only the premium, normally a small amount relative to the value of the underlying security or commodity futures contract, in order to buy an option contract. A commodity option that is “out-of-the-money” and is not offset by the time it expires becomes valueless.

 

Other Investments; Future Developments. The Master Fund may enter into interest rate swap contracts and invest and trade in other debt securities and cash instruments. The Master Fund may also take advantage of other opportunities in the area of options, futures contracts and other synthetic or derivative instruments which are not presently contemplated or which are not currently available but which may be developed in the future and which may involve risks not described herein.

 

  

- 3 -

  

 

Modification of Trading Program. The Master Fund intends to maintain maximum flexibility in its trading and investment strategy and may modify the Master Fund’s investment objective and strategies if it believes that it is in the Fund’s best interests to do so, without notice to, or prior consent of, the Members.

 

Leverage

 

The Master Fund intends to borrow money from banks and other lenders and to trade on margin to leverage its investments. The Master Fund may pledge its assets as security for its borrowings. The leverage used on the Master Fund’s investments (other than investments made for hedging purposes) generally will not exceed 3:1; however, there may be occasional short-term increases in the amount of leverage used due to major moves in the markets. Most of the Master Fund’s borrowing will be short-term (less than 6 months) at commercial rates of interest. The Master Fund may increase or decrease the amount of leverage it uses at any time.

 

There can be no assurance that the Fund’s investment objective will be realized. The success of the Fund depends on the ability of the Manager to select Financial Instruments.

 

- 4 -ex10-2.htm

Exhibit 10.2

 

MANAGEMENT AGREEMENT

 

THIS MANAGEMENT AGREEMENT (this “Agreement”) is made as of the 5th day of April, 2011 (the “Effective Date”), by and between RB Commercial Mortgage LLC, a Delaware limited liability company (the “Company”), and RiverBanc LLC, a North Carolina limited liability company (the “Manager”).

 

RECITALS

 

WHEREAS, the Company is a Delaware limited liability company and a wholly-owned subsidiary of New York Mortgage Trust, Inc., a Maryland corporation (“NYMT”), that (i) intends to invest principally in commercial mortgage-backed securities, subordinate debt, preferred equity, new whole loans, seasoned whole loans and other assets that meet in all material respects the Company’s Guidelines (as hereinafter defined) and (ii) may determine to qualify as a real estate investment trust for federal income tax purposes and elect to receive the tax benefits accorded by Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”); and

 

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

 

NOW, THEREFORE, in consideration of the mutual agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Manager agree as follows:

 

1. Definitions.  Capitalized terms used in this Agreement, and not otherwise defined, shall have the respective meanings assigned to them below:

 

1.1 “Adjusted Net Income” has the meaning set forth in Section 5.3.

 

1.2 “Affiliate” means, when used with reference to a specified Person, any Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by, or is under common Control with the specified Person.

 

1.3 “Agreement” has the meaning set forth in the Preamble.

 

1.4 “A-Note” means a senior tranche of a commercial first mortgage loan originated or acquired by the Company that is structured in such a manner for sale.

 

1.5 “Base Management Fee” has the meaning set forth in Section 5.2.

 

1.6 “Calculation Period” has the meaning set forth in Section 5.3.1.

 

1.7 “Cause” has the meaning set forth in Section 9.5.

 

  

  

  

 

1.8 “Change of Control” means the occurrence of any of the following:

 

(i) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Manager, taken as a whole, to any Person other than one of its Affiliates; or

 

(ii) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than one of the Manager’s Affiliates (including, without limitation, Harvest Capital Strategies LLC or Hypotheca Capital, LLC and their Affiliates), in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of the total voting power of the voting capital interests of the Manager.

 

1.9 “Company” has the meaning set forth in the Preamble.

 

1.10 “Code” has the meaning set forth in the recitals.

 

1.11 “Compliance Requirements” has the meaning set forth in Section 2.1.

 

1.12 “Control” (including the correlative meanings of the terms “Controls,” “Controlled by” and “under common Control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests, by contract or other means.

 

1.13 “Deal Fee” has the meaning set forth in Section 5.4.

 

1.14 “Donlon” means Kevin Donlon, the Chief Executive Officer of the Manager.

 

1.15 “Effective Date” has the meaning set forth in the Preamble.

 

1.16 “Equity” means, for the purpose of calculating the Management Fee, the Invested Capital of the Company.

 

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

 

1.18 “GAAP” means United States generally accepted accounting principles.

 

1.19 “Governing Instruments” means, with regard to any entity, the articles 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 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.

 

  

2

  

 

1.20 “Guidelines” has the meaning set forth in Section 2.1.

 

1.21 “Hurdle Rate” has the meaning set forth in Section 5.3.1.

 

1.22 “Incentive Management Fee” has the meaning set forth in Section 5.3.1.

 

1.23 “Incentive Tail Assets” shall have the meaning set forth in Section 9.4.

 

1.24 “Independent Directors” means a director who is not affiliated, directly or indirectly, with the Manager or the Company, whether by ownership of, ownership interest in, employment by, or any material business or professional relationship with the Manager or the Company (other than solely in the capacity of a director for the Company or NYMT).  The foregoing definition shall only apply in the event the Company is reincorporated in the State of Maryland in the future.

 

1.25 “Initial Term” has the meaning set forth in Section 9.1.

 

1.26 “Investment Advisers Act” means the Investment Advisers Act of 1940, as amended from time to time.

 

1.27 “Investments” means the investments of the Company.

 

1.28 “Invested Capital” means the cumulative amount of capital payments contributed to the Company.

 

1.29 “Losses” has the meaning set forth in Section 5.5.

 

1.30 “Management Fee” has the meaning set forth in Section 5.1.

 

1.31 “Manager” has the meaning set forth in the Preamble.

 

1.32 “NYMT” has the meaning forth in the recitals.

 

1.33 “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.

 

1.34 “REIT” means real estate investment trust as defined under Section 856 of the Code.

 

1.35 “REIT Provisions of the Code” means Sections 856 through 860 of the Code.

 

1.36 “Renewal Term” has the meaning set forth in Section 9.1.

 

1.37 “Sole Member” means New York Mortgage Trust, Inc. or any of its majority-owned subsidiaries.

 

1.38 “Termination Date” shall have the meaning set forth in Section 9.3.

 

  

3

  

 

1.39 “Termination Fee” has the meaning set forth in Section 9.2.

 

1.40 “Termination Notice” has the meaning set forth in Section 9.6.3.

 

1.41 “Termination Without Cause” has the meaning set forth in Section 9.6.3.

 

1.42 “Third Parties” has the meaning set forth in Section 3.2.

 

2. General Duties of the Manager.

 

2.1 Services to be Provided by the Manager.  The Manager will provide the Company with investment management services in accordance with the terms and conditions contained in this Agreement and other applicable laws and regulations.  Under this Agreement, the Manager shall have complete discretion and authority to manage the assets of the Company, subject to the written investment guidelines set forth in Exhibit A to this Agreement (the “Guidelines”) and the other terms and conditions in this Agreement, and is hereby appointed the Company’s agent and Attorney-in-Fact for that purpose.  As such, the Manager is authorized to perform the following, at the Company’s expense, without further approval from the Company, except as expressly required by this Agreement or as required by law: (i) to make all investment decisions; (ii) to buy, sell and otherwise trade in securities; and (iii) to select brokers or dealers to execute securities transactions.  Notwithstanding the foregoing, the Manager’s activities hereunder shall at all times be subject to modification at the Sole Member’s direction to ensure the Sole Member’s continuous compliance with applicable requirements under the United States Internal Revenue Code and the rules and regulations thereunder for the Sole Member to maintain its status as a REIT and under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and the rules and regulations thereunder for the Sole Member and the Company and its subsidiaries to maintain their exemption from regulation as an investment company (collectively, the “Compliance Requirements”).  The Manager shall be responsible solely for the investment of assets of the Company and shall have no duty to inquire into or review the management or investment of other assets of the Sole Member of the Company and its other affiliates.  The Manager agrees to perform its duties set forth herein in good faith and in accordance with commercially reasonable standards, including, without limitation:

 

2.1.1 serving as the Company’s consultant with respect to the formulation of the Guidelines and any modifications thereto, which shall be negotiated and approved in good faith by each of the Manager and the Sole Member of the Company, and other policies for approval by the Sole Member of the Company.  The Guidelines set forth in Exhibit A hereto, including any modifications directed by the Sole Member in order to satisfy the Compliance Requirements, shall be applied at the time a transaction is entered into, regardless of later market movements, and shall not be deemed breached as a result of changes in the value or status of an investment following its acquisition.

 

2.1.2 investigating, analyzing and selecting possible investment opportunities;

 

2.1.3 representing the Company in connection with the purchase, sale, commitment to purchase or sell, sourcing, structuring, and closing upon commercial mortgage-backed securities, subordinate debt, preferred equity, new whole loans, seasoned whole loans and other assets that meet in all material respects the Company’s Guidelines, and managing the Company’s portfolio of assets;

 

  

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2.1.4 advising the Company and negotiating counterparty agreements, including with third-party lenders for borrowing and hedging transactions;

 

2.1.5 making available to the Company price information, statistical and economic research, data and analysis regarding the Company’s activities and the services performed for the Company by the Manager;

 

2.1.6 investing any of the Company’s money in accordance with the Company’s Guidelines, policies and procedures;

 

2.1.7 advising the Company in connection with investment and related policy decisions to be made by the Sole Member of the Company;

 

2.1.8 assisting the Company in qualifying to do business in all applicable jurisdictions and assisting the Company with obtaining and maintaining all appropriate licenses;

 

2.1.9 assisting the Company to retain qualified experts as and when needed;

 

2.1.10 advising the Company in its compliance with all federal, state and local regulatory requirements applicable to the Company and its Affiliates in respect of its business activities, including disclosure associated with periodic reporting under the Exchange Act;

 

2.1.11 advising the Company and its Affiliates, if reasonably requested by the Company, in their compliance with federal, state and local tax filings and reports;

 

2.1.12 advising the Company as to its capital structure and capital raising activities;

 

2.1.13 evaluating and recommending to the Sole Member hedging strategies for the Company;

 

2.1.14 monitoring the operating performance of the Investments and providing periodic reports with respect thereto to the Sole Member of the Company, including comparative information with respect to such operating performance and budgeted or projected operating results;

 

2.1.15 assisting the Company with the resolution of 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 the request and approval of the Company;

 

2.1.16 using commercially reasonable efforts to cause expenses incurred by or on behalf of the Company to be commercially reasonable or commercially customary and within any budgeted parameters or expense guidelines set by the Sole Member of the Company from time to time; and

 

  

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2.1.17 using commercially reasonable efforts to cause the Company to comply with all applicable laws.

 

2.2 Obligations of the Manager; Restrictions.

 

2.2.1 Verify Conformity with Acquisition Criteria.  The Manager shall refrain from any action that does not comply with the Guidelines adopted by the Sole Member of the Company as in effect from time to time during the term hereof.  The Sole Member of the Company will periodically review the Guidelines and the Company’s portfolio of Investments, each in consultation with the Manager, but will not review each proposed investment.  If the Sole Member of the Company determines in its periodic review of transactions that a particular transaction does not comply with the Guidelines, then the Sole Member of the Company will consider what corrective action, if any, can be taken and the Manager will undertake such corrective action as directed by the Sole Member of the Company.

 

2.2.2 Restrictions.  The Manager acknowledges that the Company intends to conduct its operations in accordance with the Compliance Requirements and the Manager agrees to use commercially reasonable efforts to cooperate with the Company’s efforts to conduct its operations in accordance with the Compliance Requirements.  The Manager shall refrain from any action which, in its sole judgment made in good faith in consultation with legal counsel, (A) would adversely affect the status of the Company or, if applicable, any Affiliate of the Company as a REIT, (B) would adversely affect the Company’s, or any Affiliate’s of the Company, exclusion from status as an investment company under the Investment Company Act, (C) is not in compliance with the Guidelines or (D) would violate any material law, rule or regulation of any governmental body or agency having jurisdiction over the Company or any such Affiliate or which would otherwise not be permitted by the Company’s or such Affiliate’s Governing Instruments or any agreements provided to the Manager.  If the Manager is directed to take any such action by the Sole Member of the Company (including, without limitation, any corrective action directed to be taken pursuant to Section 2.2.1), the Manager shall promptly notify the Company of the Manager’s judgment that such action would adversely affect such status or violate any such law, rule or regulation or the Governing Instruments; operating policies adopted by the Company; or any agreements provided to the Manager.

 

2.2.3 Interested Transactions.  Except as set forth in this Agreement, the Manager shall not (i) consummate any transaction which would involve the acquisition by the Company of an asset in which the Manager or any Affiliate thereof has an ownership interest or the sale by the Company of an asset to the Manager or any Affiliate thereof, (ii) cause the Company to pay, or become liable to the Manager for, any amounts not specifically provided for herein, or (iii) under circumstances where the Manager is subject to an actual or potential conflict of interest, in the reasonable judgment of the Manager, 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 Person of a waiver, forbearance or other relief, or the enforcement against such 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 the Sole Member.

 

  

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2.2.4 Portfolio Transactions.  In placing portfolio transactions and selecting brokers or dealers, the Manager shall obtain on behalf of the Company commercially reasonable terms.  In assessing commercially reasonable terms for any transaction, the Manager shall consider all factors 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.

 

2.2.5 Reports.  The Manager shall prepare regular reports for the Sole Member of the Company to enable the Sole Member of the Company to review the Company’s acquisitions, portfolio composition and characteristics, credit quality, performance and compliance with the investment criteria and policies approved by the Sole Member of the Company.

 

2.2.6 Fidelity Bond.  Starting as soon as commercially feasible and during the term of this Agreement, the Manager shall obtain and maintain a fidelity bond in such amount and with an issuer as the Manager shall determine (subject to the reasonable approval of the Sole Member of the Company), which shall cover, among other things, losses resulting directly from dishonest or fraudulent acts committed by an employee of the Manager and certain other losses.  The premium for such bond shall be paid by the Manager.

 

2.2.7 Insurance Coverage.  Starting as soon as commercially feasible and during the term of this agreement, the Manager shall maintain reasonable and customary “errors and omissions” insurance coverage and other customary insurance coverage.  The premium for such insurance shall be paid by the Manager or its Affiliates.

 

2.3 Cooperation of the Company.  The Company agrees to take all actions reasonably required to permit the Manager to carry out its duties and obligations under this Agreement.  The Company further agrees to make available to the Manager all materials reasonably requested by the Manager to enable the Manager to satisfy its obligations to the Company.  Upon request by the Manager and provided funds have been contributed to the Company pursuant to an NYMT Contribution (as defined in the Limited Liability Company Agreement of the Manager, dated as of the date hereof), the Company shall promptly make sufficient funds available to the Manager to fund any Investment that satisfies the Guidelines.

 

3. Devotion of Time; Additional Activities of the Manager and its Affiliates.

 

3.1 Devotion of Time.  The Manager will devote such of its time in connection with the investment management services to be provided hereunder as the Sole Member of the Company and the Manager reasonably deem necessary and appropriate, commensurate with the level of activity of the Company from time to time.

 

  

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3.2 Other Activities; Competition.  The Manager, or any Affiliate of the Manager, may act as manager for any other persons, firms or corporations other than the Company (hereinafter collectively referred to as “Third Parties”), the investment objectives or policies of which are similar to those of the Company.  The Manager or any such Affiliate may buy, sell or trade any securities or commodities or real estate for the Manager’s own accounts or for the accounts of others for whom the Manager or any such Affiliate may be acting.  Notwithstanding the foregoing, until the termination of this Agreement, for so long as NYMT or Donlon own directly or indirectly any Class A Common Interests (as such term is defined in the Limited Liability Company Agreement of the Manager, dated as of the date hereof) of the Manager, the Manager shall not act as manager for, sponsor, support or source investments, or otherwise provide services similar to the services contemplated by this Agreement, to any Third Parties that are, or who have Affiliates that are, organized to qualify as a REIT or public partnership, other than the Company and its Affiliates; provided, however, that in the event the Company and the Manager are unable to reach agreement on any changes to the Guidelines pursuant to Section 2.1.1 hereof within 60 days following the commencement of negotiations related thereto the restrictions set forth in this sentence shall have no further force or effect.  The Company shall have the benefit of the Manager’s best judgment and effort in rendering services and, in furtherance of the foregoing, the Manager shall not undertake activities which, in its good faith judgment, will substantially and adversely affect the performance of its obligations under this Agreement.

 

3.3 Allocation of Investment Opportunities and Aggregation Policy.

 

3.3.1 The Company and the Manager agree that to the extent the Manager provides management services to Third Parties with investment objectives similar to the Company, and the Manager identifies an investment opportunity or opportunities suitable for the Company and one or more Third Parties, and such investment is of a size that requires an allocation of such investment between the Company and one or more Third Parties, the Manager will allocate such investment in a fair and equitable manner and will take into account the following considerations: (i) the primary investment strategy and the particular stage in portfolio development within each company managed by the Manager; (ii) the effect of the potential acquisition on the diversification of each company’s portfolio’s investments by coupon, purchase price, size, prepayment characteristics, and leverage; (iii) the cash requirements of each company’s portfolio; (iv) the anticipated cash flow of each company’s portfolio; and (iv) the amount of funds available to each company’s portfolio and the length of time such funds have been available for investment.  The parties hereto acknowledge that information and recommendations provided by the Manager to the Company may be different from the information and recommendations supplied by the Manager or its Affiliates to Third Parties.  The Company shall be entitled to equitable treatment under the circumstances in receiving information, recommendations and any other services, but the Company recognizes that it is not entitled to receive preferential treatment as compared with the treatment given by the Manager to any Third Parties.  On a quarterly basis, subject to preexisting contractual confidentiality obligations owed by the Manager to Third Parties, the Manager will provide to the Sole Member of the Company all information available or reasonably requested by the Sole Member of the Company with respect to allocation decisions the Manager has made to allocate investment opportunities between the Company and Third Parties, if any, and discuss with the Sole Member of the Company the portfolio needs of each managed company for the next quarter to determine prospectively whether any asset allocation conflict is likely to occur and the proposed resolution of any such conflict.

 

  

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3.3.2 The parties hereto agree that (i) the Manager may aggregate transactions by the Company and other clients of the Manager and its affiliates in circumstances where the Manager reasonably believes such aggregation would result in best execution, (ii) no account will be favored over any other account and each account that participated in aggregated orders will participate at the average price acquired for all transactions on a given business day, (iii) each account’s books and records will separately reflect, where orders are aggregated, the securities held by and bought and sold for each account, (iv) funds of participating accounts whose orders are aggregated will be deposited with one or more banks or broker/dealers, and any cash attributable to the accounts will not be held collectively for the respective owners any longer than is commercially necessary to settle the purchase or sale in question on a delivery versus payment basis and (v) no party will receive additional compensation or remuneration of any kind as a result of the aggregation procedure.

 

4. Records; Confidentiality.  The 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 the Company or any subsidiary of the Company at any time during normal business hours.  Except in the ordinary course of business of the Company, the Manager shall keep confidential any and all information it obtains from time to time in connection with the services it renders under this Agreement and shall not disclose any portion thereof to non-affiliated third parties, except with the prior written consent of the Company.

 

5. Compensation of the Manager.

 

5.1 Management Fee.  For the Manager’s services rendered under this Agreement, the Company shall pay the Manager a management fee (the Base Management Fee, Incentive Management Fee and Deal Fee, each as hereinafter defined, are collectively referred to as, the “Management Fee”).

 

5.2 Computation of Base Management Fee.  The Manager shall earn a base management fee that shall be calculated and paid monthly in arrears, equal to 1/12th of 1.50% (per annum) of Equity (such amount being hereinafter referred to as, the “Base Management Fee”).  For purposes of calculating the Base Management Fee, Equity shall be determined as of the last day of the applicable month.  The Manager shall compute the Base Management Fee within fifteen (15) business days after the end of each month and shall promptly deliver such calculation to the Sole Member for review.  The Company is obligated to pay any undisputed portion of the Base Management Fee within five (5) business days following the delivery to the Company of the Manager’s written statement setting forth the computation of the Base Management Fee for such month.

 

  

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5.3 Incentive Fee.

 

5.3.1 The Manager will be entitled to an incentive fee (the “Incentive Management Fee”) that shall be calculated quarterly and payable within 60 days after the end of each fiscal quarter during the Initial Term and each Renewal Term of this Agreement. For each of the first three quarters of each calendar twelve (12) month period during the term of this Agreement, the Incentive Management Fee calculation shall be based upon the average Equity invested in the Company during the fiscal quarter, and shall be payable in an amount equal to 35% of the dollar amount by which Adjusted Net Income (as defined below) attributable to invested Equity of the Company, before the Incentive Management Fee, exceeds an annualized 12% rate of return on such invested Equity (the “Hurdle Rate”). For the fourth fiscal quarter of each calendar twelve (12) month period during the term of this Agreement, the Incentive Management Fee shall be payable in an amount equal to the excess, if any, of (x) 35% of the dollar amount by which Adjusted Net Income attributable to invested Equity of the Company during the calendar twelve (12) month period, before the Incentive Management Fee, exceeds the Hurdle Rate, over (y) the total Incentive Management Fees paid for the first three quarters of each calendar twelve (12) month period during the term of this Agreement. The return on Equity for each calendar twelve (12) month period or quarter, as applicable, during the term of this Agreement (the “Calculation Period”) shall be determined by dividing (i) the Adjusted Net Income for the Calculation Period by (ii) the average invested Equity of the Company during the Calculation Period. “Adjusted Net Income” for purposes hereof is defined as net income (loss) calculated in accordance GAAP, excluding all unrealized gains and losses and after giving effect to all expenses paid to or on behalf of the Manager in connection with the Equity of the Company invested in Investments or incurred as part of the Investment cost, including amortization of capitalized costs of Investments, but not including any costs capitalized. Further for purposes hereof, the calculation of the return on Equity for Investments that utilize leverage to finance such Investments shall be calculated utilizing the Company’s hedged cost of funding under GAAP for such investment plus a 4.0% risk premium.  An illustration of how the Incentive Management Fee is calculated is included in Exhibit B.

 

5.3.2 Any Incentive Management Fee payment will be subject to a 9.0% minimum return (the “High Water Mark”). Like the Hurdle Rate, which is calculated on a calendar twelve (12) month basis, the High Water Mark is calculated on a calendar twelve (12) month basis and shall reset every twenty-four (24) months. The High Water Mark will be a static dollar figure that the Manager will be required to recoup, to the extent there was a deficit in the prior High Water Mark calculation period before it can receive an Incentive Management Fee. For example, if in the first quarter of 2011, the Company earns an annualized return on Equity of 7%, which is 2% short of the High Water Mark, and this 2% deficit is equivalent to a dollar amount of $2 million, the Manager would have to earn net profit of $2 million in subsequent quarters to get above the High Water Mark before it would be eligible again to receive an Incentive Management Fee. This is independent of the new High Water Mark, which will have to be reached in the following quarter(s).  An illustration of how the High Water Mark is calculated is included on Exhibit B.

 

5.4 Deal Fees.  The Company agrees that it may, with the assistance of the Manager, charge borrowers origination fees on loans originated by the Company or earn profits on the sale of loans owned by the Company.  All (x) origination fees and (y) profits on the sale of A-Notes will be split on a 50/50 basis between the Manager and the Company (the “Deal Fee”).

 

5.5 Fee Offset.  In the event the Company incurs, accrues or otherwise suffers any losses under GAAP (“Losses”) as a result of the Manager’s (i) failure to materially adhere to the Company’s Guidelines or (ii) breach of any term or condition hereof, without limiting any other rights and remedies the Company may have in law or in equity against the Manager, any Management Fee that would otherwise be due and owing hereunder (whether accrued and unpaid or in the future) shall be offset against the amount of such Losses on a dollar for dollar basis.

 

  

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6. Expenses of the Manager and the Company.

 

6.1 Expenses of the Manager.  Without regard to the compensation received under this Agreement by the Manager, the Manager shall bear the following expenses:

 

6.1.1 employment expenses of the personnel employed by the Manager and/or its Affiliates (including, but not limited to, officers of the Company employed by the Manager and/or its Affiliates), including, but not limited to, salaries, wages, payroll taxes and the cost of employee benefit plans of such personnel.

 

6.1.2 rent, telephone, utilities, office furniture, equipment, machinery, and other office expenses of the Manager and/or its Affiliates.

 

6.2 Expenses of the Company.  The Company or any subsidiary of the Company shall pay all of its expenses except those that are the responsibility of the Manager pursuant to Section 6.1 of this Agreement, and without limiting the generality of the foregoing, it is specifically agreed that the following expenses of the Company or any subsidiary of the Company shall be paid by the Company and shall not be paid by the Manager or Affiliates of the Manager:

 

6.2.1 expenses in connection with the issuance and transaction costs incident to the acquisition, disposition and financing of Investments, including those expenses that would customarily be capitalized as part of the Investment;

 

6.2.2 the compensation and expenses of the Company’s directors and the cost of liability insurance to indemnify the Company’s directors and officers;

 

6.2.3 costs associated with the establishment and maintenance of any of the Company’s credit or other indebtedness (including commitment fees, accounting fees, legal fees, closing and other similar costs) or any of the Company’s securities offerings;

 

6.2.4 expenses connected with communications to holders of the Company’s securities or of its Affiliates 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, without limitation, all costs of preparing and filing required reports with the SEC, the costs payable by the Company to any transfer agent and registrar in connection with the listing and/or trading of the Company’s or its Affiliate’s stock on any exchange, the fees payable by the Company or it Affiliates to any such exchange in connection with its listing, costs of preparing, printing and mailing of the Company’s or its Affiliates annual report to its stockholders and proxy materials with respect to any meeting of the stockholders of the Company;

 

6.2.5 costs associated with any computer software or hardware, electronic equipment or purchased information technology or analytical services from third-party vendors to the extent used for the Company and approved in advance by the Company;

 

  

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6.2.6 expenses incurred by the Manager for reasonable travel on the Company’s behalf and other reasonable out-of-pocket expenses incurred by personnel and agents of the Manager in connection with the purchase, financing, refinancing, sale or other disposition of an Investment;

 

6.2.7 costs and expenses incurred with respect to market information systems and publications, research publications and materials, and settlement, clearing and custodial fees and expenses to the extent used for the Company and approved in advance by the Company;

 

6.2.8 compensation and expenses of the Company’s custodian and transfer agent, if any;

 

6.2.9 the costs of maintaining compliance with all federal, state and local rules and regulations or any other regulatory agency;

 

6.2.10 all taxes and license fees;

 

6.2.11 costs and expenses incurred in contracting with third parties, including Affiliates of the Manager;

 

6.2.12 all 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 appraisal, reporting, audit and legal fees;

 

6.2.13 expenses relating to any office(s) or office facilities, including but not limited to disaster backup recovery sites and facilities, maintained for the Company or its investments separate from the office or offices of the Manager;

 

6.2.14 expenses connected with the payments of interest, dividends or distributions in cash or any other form authorized or caused to be made by the Sole Member of the Company to or on account of holders of the Company’s securities or of its subsidiaries, including, without limitation, in connection with any dividend reinvestment plan;

 

6.2.15 any judgment or settlement of pending or threatened proceedings (whether civil, criminal or otherwise) against the Company, or against any trustee, director, partner, member or officer of the Company in his capacity as such for which the Company is required to indemnify such trustee, director, partner, member or officer by any court or governmental agency; and

 

6.3 Expense Reports; Reimbursement to the Manager.  The Manager shall prepare a report documenting the reimbursable expenses incurred by the Manager on behalf of the Company during each month, and shall deliver such statement to the Sole Member within fifteen (15) business days after the end of each calendar month.  Undisputed expenses incurred by the Manager on behalf of the Company shall be reimbursed monthly to the Manager on the last day of the month in which such report is properly submitted.  Expense reimbursement to the Manager shall be subject to adjustment at the end of each fiscal year in connection with the annual audit of the Company.  In the event the Company and the Manager are unable to reach agreement regarding any expenses submitted by the Manager hereunder within 60 days following the Manager’s submission of such expenses pursuant to this Section 6.3, the Company and the Manager agree to submit such disputed expenses to a single, qualified and independent arbitrator, whose appointment shall be agreed upon between the parties, or failing agreement within fourteen (14) days, after either party has given to the other a written request to concur in the appointment of an arbitrator, by an arbitrator to be appointed by the President or a Vice President of the Chartered Institute of Arbitrators.  The Company and the Manager hereby agree to evenly split the cost associated with the appointment of any such arbitrator.

 

  

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7. Limits of Manager Responsibility.  The Manager assumes no responsibility under this Agreement other than to render the services specifically called for under this Agreement and shall not be responsible for any action of the Company in following or declining to follow any advice or recommendations of the Manager, including as set forth in Section 2.2.2 of this Agreement.  The Manager, its managers, officers, members and employees will not be liable to the Company, any issuer of Investments, any Affiliate of the Company, its stockholders or any of its Affiliate’s stockholders or the Independent Directors for any acts or omissions, errors of judgment or mistakes of law by the Manager, its managers, officers, members or employees under or in connection with this Agreement, except by reason of acts or omissions, errors of judgment or mistakes of law constituting willful misconduct, gross negligence or fraud.  The Company shall reimburse, indemnify and hold harmless the Manager, its managers, officers, members and employees of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including, without limitation, attorneys’ fees) in respect of or arising from any acts or omissions, errors of judgment or mistakes of law of the Manager, its managers, officers, members and employees made in the performance of the Manager’s duties under this Agreement or pursuant to any underwriting agreement or similar agreement to which Manager is a party in connection with any debt or equity sales of the Company’s securities and not constituting willful misconduct, gross negligence or fraud.  The Manager shall be further indemnified by the Company as an agent of the Company to the maximum extent permissible in accordance with the terms of the Company’s Governing Instruments.

 

The Manager shall reimburse, indemnify and hold harmless the Company and the Sole Member and their members, managers, directors, officers, employees and stockholders from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including, without limitation, attorneys’ fees) in respect of or arising from the Manager’s willful misconduct, gross negligence or fraud.

 

8. No Joint Venture.  The Company and the Manager are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers or impose any liability as such on any of them.  The Manager is an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Company.

 

9. Term; Renewal; Termination Fee; Termination.

 

  

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9.1 Term.  This Agreement shall commence on the Effective Date and shall continue in force until the second anniversary of the Effective Date (the “Initial Term”) and thereafter shall be automatically extended for additional one (1) year terms (each, a “Renewal Term”) without further action unless one party delivers written notice of non-renewal to the other party at least 180 days prior to the end of the then-applicable term.

 

9.2 Termination Fee.  If this Agreement is terminated for any reason other than pursuant to Section 9.4.1 (but, in the case of Section 9.4.1(i), only to the extent that the Manager’s actions caused the Company to become an investment company under the Investment Company Act), Section 9.5, Section 9.6.1 and Section 9.6.2 hereof, the Company shall pay the Manager a termination fee in an amount equal to 24 times the Base Management Fee earned by the Manager during the one month period immediately preceding the date of such termination (the “Termination Fee”) and shall further continue to pay the Manager the Incentive Management Fee until such time as the Company ceases to hold the Incentive Tail Assets (defined below).

 

9.3 Right of First Refusal Upon Termination.  If this Agreement is terminated for any reason by the Company, including non-renewal, the Manager shall have the exclusive right of first refusal for a period of 180 days following the date on which the Manager shall cease to provide services hereunder (the “Termination Date”), which such right of first refusal shall be renewable in accordance with the last sentence of this Section 9.3, to purchase any of the Company’s investments, other than investment-grade securities that existed on the date of termination (the “ROFR Investments”).  Upon effectiveness of the foregoing provision, in the event the Company receives a bone fide third party offer to purchase any ROFR Investment, the Company shall provide the Manager with written notice thereof detailing the terms of such sale.  The Manager shall have 120 days following receipt of such written notice to exercise its right of first refusal and purchase the subject ROFR Investment on the same terms and conditions as set forth in the Company’s written notice to the Manager.  In the event the Manager fails to exercise its right of first refusal and purchase the ROFR Investment within said 120 day period, the Company may sell the subject ROFR Investments to a third party on the same terms and conditions as were set forth in the original notice to the Manager within 180 days after the expiration of the aforesaid 120 day period.  If the Company does not sell the ROFR Investments within such 180 day period, the Company shall again comply with the terms hereof prior to any such sale.

 

9.4 Termination by the Manager.

 

9.4.1 The Manager may terminate the Agreement if (i) the Company becomes an investment company under the Investment Company Act or (ii) the Manager declines to renew the Agreement by providing the Company with 60 days’ prior written notice.  No Termination Fee shall be due and owing in the event the Manager terminates the Agreement in accordance with this Section 9.4.1.  In the event this Agreement is terminated pursuant to this Section 9.4.1, from and after the Termination Date, the Manager will continue to be entitled to receive an Incentive Fee in accordance with the terms of this Agreement on all Investments held by the Company as of the Termination Date (the “Incentive Tail Assets”), until such time as such Incentive Tail Assets are disposed of by the Company or mature; provided, however, that the Manager shall not be entitled to an Incentive Fee on Incentive Tail Assets to the extent this Agreement is terminated pursuant to clause (i) of this subsection and the Manager’s actions are deemed to have caused the Company to become an investment company under the Investment Company Act.

 

  

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9.4.2 The Manager may terminate the Agreement, which termination will trigger payment of the Termination Fee, if the Company has breached this Agreement in any material respect, the Manager provides 60 days’ written notice of such breach and the Company fails to cure such breach within 60 days of receiving written notice.

 

9.5 Termination by Company for Cause.  At the option of the Company, this Agreement shall be and become terminated upon 30 days’ written notice of termination from the Company to the Manager if any of the following events shall occur (termination for any of such events shall constitute termination for “Cause”):

 

9.5.1 if Sole Member of the Company reasonably determines that the Manager has breached this Agreement in any material respect and, after written notice of such violation, the Manager has failed to cure such breach within 30 days;

 

9.5.2 the Manager engages in any act of fraud or embezzlement against the Company,

 

9.5.3 there is an event of any gross negligence or willful misconduct on the part of the Manager in the performance of its duties under this Agreement that is materially detrimental to the Company;

 

9.5.4 the Manager dissolves (unless the Sole Member of the Company has previously approved a successor);

 

9.5.5 if Kevin Donlon ceases to be a full-time employee of the Manager or its Affiliates (or any of its or their successors or assigns)

 

9.5.6 the Manager undergoes a Change of Control without consent of the Sole Member of the Company; or

 

9.5.7 there is entered an order for relief or similar decree or order with respect to the Manager by a court having competent jurisdiction in an involuntary case under the federal bankruptcy laws as now or hereafter constituted or under any applicable federal or state bankruptcy, insolvency or other similar laws; or the Manager (i) ceases, or admits in writing its inability, to pay its debts as they become due and payable, or makes a general assignment for the benefit of, or enters into any composition or arrangement with, creditors; (ii) applies for, or consents (by admission of material allegations of a petition or otherwise) to the appointment of a receiver, trustee, assignee, custodian, liquidator or sequestrator (or other similar official) of the Manager or of any substantial part of its properties or assets, or authorizes such an application or consent, or proceedings seeking such appointment are commenced without such authorization, consent or application against the Manager and continue undismissed for 30 days; (iii) authorizes or files a voluntary petition in bankruptcy, or applies for or consents (by admission of material allegations of a petition or otherwise) to the application of any bankruptcy, reorganization, arrangement, readjustment of debt, insolvency, dissolution, liquidation or other similar law of any jurisdiction, or authorizes such application or consent, or proceedings to such end are instituted against the Manager without such authorization, application or consent and are approved as properly instituted and remain undismissed for 30 days or result in adjudication of bankruptcy or insolvency; or (iv) permits or suffers all or any substantial part of its properties or assets to be sequestered or attached by court order and the order remains undismissed for 30 days; provided, however, that in the event the Manager becomes the subject of a case under federal bankruptcy or similar federal or state laws and remains in possession of its property and continues to operate its business (as a debtor in possession or otherwise), the Company shall not have the option to terminate this Agreement unless the Independent Directors determine in good faith that as a result of such proceeding the Manager cannot reasonably be expected to fulfill its obligations under this Agreement.  If any of the events specified in this Section shall occur, the Manager shall give prompt written notice thereof to the Company upon the happening of such event.

 

  

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9.6 Other Termination by Company.

 

9.6.1 Negative Return on Equity.  In the event the Company realizes a negative 15% return on Equity, calculated in accordance with GAAP, in any fiscal year on Investments source or acquired on the Company’s behalf by the Manager, the Company may terminate the Agreement by written notice to the Manager within 180 days following the fiscal year in which such negative return was realized.  No Termination Fee shall be due and owing in the event the Company terminates the Agreement in accordance with this Section 9.6.1.  In the event this Agreement is terminated pursuant to this Section 9.6.1, from and after the Termination Date, the Manager will continue to be entitled to receive an Incentive Fee in accordance with the terms of this Agreement on all Incentive Tail Assets, until such time as such Incentive Tail Assets are disposed of by the Company or mature.

 

9.6.2 Failure to Raise Capital or Obtain Investments.  In the event the Company or NYMT have not raised an additional $25.0 million of equity capital for the Company or the Manager has been unable to close on at least $50.0 million of investments meeting the Investment Criteria by December 31, 2011, the Company may terminate this Agreement by providing written notice to the Company within 30 days following December 31, 2011.  No Termination Fee shall be due and owing in the event the Company terminates the Agreement in accordance with this Section 9.6.2.  In the event this Agreement is terminated pursuant to this Section 9.6.2, from and after the Termination Date, the Manager will continue to be entitled to receive an Incentive Fee in accordance with the terms of this Agreement on all Incentive Tail Assets, until such time as such Incentive Tail Assets are disposed of by the Company or mature.

 

9.6.3 Termination for any Other Reason Following Expiration of Initial Term.  Notwithstanding any other provision of this Agreement to the contrary, upon the expiration of the Initial Term and upon 180 days’ prior written notice to the Manager (the “Termination Notice”), the Company may, without Cause terminate this Agreement (a “Termination Without Cause”).  The Termination Fee shall be due and owing in the event the Manager terminates the Agreement in accordance with this Section 9.6.3.  In the event this Agreement is terminated pursuant to this Section 9.6.3, from and after the Termination Date, the Manager will continue to be entitled to receive an Incentive Fee in accordance with the terms of this Agreement on all Incentive Tail Assets, until such time as such Incentive Tail Assets are disposed of by the Company or mature.  In connection with any termination of this Agreement, including Termination Without Cause, the Manager shall cooperate with the Company in executing an orderly transition of the management of the Company’s assets to the Manager or such other Persons, as applicable.

 

  

16

  

 

10. Right of First Refusal for Securities Offerings by the Company.  The Company agrees that during the Term of this Agreement and for such time as Harvest directly or indirectly owns Class A Common Interests of the Manager, the Company shall grant JMP Securities LLC with a right of first refusal to act as a co-lead managing underwriter for all underwritten securities offerings of the Company, with such material terms and conditions of any such arrangement as shall be unanimously approved by the holders of all outstanding Class A Common Interests of the Manager.

 

11. Assignments.  This Agreement shall terminate automatically in the event of its assignment, by operation of law or otherwise, in whole or in part, by the Manager, unless such assignment is consented to in writing by the Company with the consent of a majority of the Independent Directors.  Any such permitted assignment shall bind the assignee under this Agreement in the same manner as the Manager is bound.  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 an entity which is a successor (by merger, consolidation or purchase of assets) 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.

 

12. Action Upon Termination.  Upon termination of this Agreement, the Manager shall forthwith:

 

12.1 after deducting any accrued Management Fees not subject to offset in accordance with Section 5.5 and reimbursement for its expenses to which it is then entitled, pay over to the Company or any subsidiary of the Company all money collected and held for the account of the Company or any subsidiary of the Company pursuant to this Agreement;

 

12.2 deliver to the Company 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 Company or any subsidiary of the Company; and

 

12.3 deliver to the Company all property and documents of the Company or any subsidiary of the Company then in the custody of the Manager.

 

  

17

  

 

13. Release of Money or Other Property Upon Written Request.  The Manager agrees that any money or other property of the Company or any subsidiary of the Company held by the Manager under this Agreement shall be held by the Manager as custodian for the Company or such 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 of the Company any money or other property then held by the Manager for the account of the Company or any subsidiary of the Company under this Agreement, the Manager shall release such money or other property to the Company or such subsidiary of the Company within a reasonable period of time, but in no event later than the later to occur of (i) three (3) business days following such request and (ii) the earliest time following such request that remittance will not cause the Manager to violate any law or breach any agreement to which it or the Company is a party.  The Manager shall not be liable to the Company, any subsidiaries of the Company, the Independent Directors, or the Company’s or its subsidiaries’ stockholders for any acts performed or omissions to act by the Company or any subsidiary of the Company in connection with the money or other property released to the Company or any subsidiary of the Company in accordance with this Section 13 and not constituting willful misconduct, gross negligence or fraud.  The Company and any subsidiary of the Company shall indemnify the Manager, its managers, officers, members and employees against any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including, without limitation, attorneys’ fees), which arise in connection with the Manager’s release of such money or other property to the Company or any subsidiary of the Company in accordance with the terms of this Section 13 unless such expenses, losses, damages, liabilities, demands, charges and claims arise in connection with acts or omissions which constitute willful misconduct, gross negligence or fraud.  Indemnification pursuant to this provision shall be in addition to any right of the Manager to indemnification under Section 7 of this Agreement.

 

14. Representations and Warranties.

 

14.1 Company in Favor of the Manager.  The Company hereby represents and warrants to the Manager as follows:

 

14.1.1 Due Formation.  The Company is duly organized, validly existing and in good standing under the laws of State of Delaware, has the power to own its assets and to transact the business in which it is now engaged.  The Company does not do business under any fictitious business name.

 

14.1.2 Power and Authority.  The Company has the power and authority to execute, deliver and perform this Agreement and all obligations required under this Agreement and has taken all necessary action to authorize this Agreement on the terms and conditions hereof and the execution, delivery and performance of this Agreement and all obligations required under this Agreement.  Except as shall have been obtained, no consent of any other person, including, without limitation, stockholders, partners and creditors, as applicable, of Company, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by the Company in connection with this Agreement or the execution, delivery, performance, validity or enforceability of this Agreement and all obligations required under this Agreement.  This Agreement has been, and each instrument or document required under this Agreement will be, executed and delivered by a duly authorized officer of the Company, and this Agreement constitutes, and each instrument or document required under this Agreement when executed and delivered under this Agreement will constitute, the legally valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

 

  

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14.1.3 Execution, Delivery and Performance.  The execution, delivery and performance of this Agreement and the documents or instruments required under this Agreement will not violate any provision of any existing law or regulation binding on the Company, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on the Company, or the Governing Instruments of, or any securities issued by, the Company or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which the Company is a party or by which the Company or any of its assets may be bound, and will not result in, or require, the creation or imposition of any lien on any of its property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking.

 

14.2 Manager In Favor of Company.  The Manager hereby represents and warrants to the Company as follows:

 

14.2.1 Due Formation.  The Manager is duly organized, validly existing and in good standing under the laws of North Carolina, has the limited liability company power to own its assets and to transact the business in which it is now engaged.  The Manager does not do business under any fictitious business name.

 

14.2.2 Power and Authority.  The Manager has the corporate power and authority to execute, deliver and perform this Agreement and all obligations required under this Agreement and has taken all necessary limited liability company action to authorize this Agreement on the terms and conditions hereof and the execution, delivery and performance of this Agreement and all obligations required under this Agreement.  No consent of any other person including, without limitation, members and creditors of the Manager, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by the Manager in connection with this Agreement or the execution, delivery, performance, validity or enforceability of this Agreement and all obligations required under this Agreement.  This Agreement has been and each instrument or document required under this Agreement will be executed and delivered by a duly authorized officer of the Manager, and this Agreement constitutes, and each instrument or document required under this Agreement when executed and delivered under this Agreement will constitute, the legally valid and binding obligation of the Manager enforceable against the Manager in accordance with its terms.

 

14.2.3 Execution, Delivery and Performance.  The execution, delivery and performance of this Agreement and the documents or instruments required under this Agreement will not violate any provision of any existing law or regulation binding on the Manager, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on the Manager, or the governing instruments of, or any securities issued by, the Manager or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which the Manager is a party or by which the Manager or any of its assets may be bound, and will not result in, or require, the creation or imposition of any lien on any of its property, assets or revenues pursuant to the provisions of any such mortgage indenture, lease, contract or other agreement, instrument or undertaking.

 

  

19

  

 

15. 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 (1) delivered by hand, (2) otherwise delivered against receipt therefor, or (3) upon actual receipt of registered or certified mail, postage prepaid, return receipt requested.  The parties may deliver to each other notice by electronically transmitted facsimile copies, provided that such facsimile notice is followed within twenty-four (24) hours by any type of notice otherwise provided for in this Section 15.  Any notice shall be duly addressed to the parties as follows:

 

	
  

	
(a)

	
If to the Company:

 

	
  

	
Hypotheca Capital LLC

	
  

	
c/o New York Mortgage Trust, Inc.

	
  

	
52 Vanderbilt Avenue

	
  

	
New York, NY  10017

Attention:                  Chief Executive Officer

Telecopy:                   (732) 559-8250

	
  

	
with a copy to:

	
  

	
Hunton & Williams LLP

	
  

	
Bank of America Plaza, Suite 4100

	
  

	
600 Peachtree Street, NE

	
  

	
Atlanta, GA  30308

Attention:                  Christopher C. Green

Email:                         cgreen@hunton.com

	
  

	
(b)

	
If to the Manager:

 

	
  

	
RiverBanc LLC

	
  

	
200 South Tyron Street, Suite 1200

	
  

	
Charlotte, NC  28202

Attention:                  Kevin Donlon

Email:                         kdonlon@riverbanc.com

	
  

	
with a copy to:

	
  

	
Cadwalader, Wickersham & Taft LLP

	
  

	
227 West Trade Street, Suite 2400

	
  

	
Charlotte, NC  28202

Attention:                  James P. Carroll, Esq.

Email:                         james.carroll@cwt.com

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 15 for the giving of notice.

 

  

20

  

 

16. Binding Nature of Agreement; Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns as provided in this Agreement.

 

17. 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 hereof.  The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof.  This Agreement may not be modified or amended other than by an agreement in writing.

 

18. Controlling 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 jurisdiction’s conflict of law provisions to the contrary.

 

19. 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 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.

 

20. Titles Not to Affect Interpretation.  The titles of 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 hereof.

 

21. 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 hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

 

22. 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.

 

23. Attorneys’ Fees.  Should any action or other proceeding be necessary to enforce any of the provisions of this Agreement or the various transactions contemplated hereby, the prevailing party will be entitled to recover its actual reasonable attorneys’ fees and expenses from the non- prevailing party.

 

24. Amendments.  This Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to this Agreement, which agreement is executed by all of the parties.  The parties hereto expressly acknowledge that no consent or approval of the Company’s stockholders is required in connection with any amendment, modification or change to this Agreement.

 

  

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25. Authority.  Each signatory to this Agreement warrants and represents that he is authorized to sign on behalf of and to bind the party on whose behalf he, she or it is signing.

 

[Signature Page Follows.]

 

 

  

22

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

 

	 “COMPANY”	 	 	  “MANAGER”	 
	 	 	 	 	 
	 	 	 	 	 
	
/s/ Steven R. Mumma

	 	 	
/s/ Kevin Donlon 

	 
	
Name: Steven R. Mumma

	 	 	
Name: Kevin Donlon

	 
	
Title: CEO and President

	 	 	
Title: Chief Executive Officer

	 

 

 

  

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EXHIBIT A

Investment Guidelines

 

Capitalized terms used but not defined herein shall have the meanings ascribed thereto in that certain Management Agreement, dated as of April 5, 2011, as may be amended from time to time (the “Management Agreement”), by and between RB Commercial Mortgage LLC, a Delaware limited liability company corporation (the “Company”), and RiverBanc, LLC, a North Carolina limited liability company (the “Manager”).

	
1.  

	
The Company shall not make any investments other than:

	
a.  

	
commercial mortgage-backed securities;

	
b.  

	
subordinate debt;

	
c.  

	
preferred equity;

	
d.  

	
new whole loans; and

	
e.  

	
seasoned whole loans.

	
2.  

	
No investment shall be made that would cause the Company to fail to, or to be able to, as the case may be, qualify as a REIT under the Code.

	
3.  

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

	
4.  

	
A majority of the independent directors (as such term is defined under the Sole Member’s Corporate Governance Guidelines) of the Sole Member must approve any transaction between the Company and/or any of its subsidiaries on the one hand and the Manager and/or any of its Affiliates on the other hand.

	
5.  

	
These Investment Guidelines may be amended, restated, modified, supplemented or waived by the Sole Member, after consultation with Manager, from time to time and at anytime.

 

  

A-1

  

 

EXHIBIT B

Section 5.3.1 Incentive Management Fee

 

At the end of each quarter the following calculation will be made:

 

Example Calculation Period:    January 1st, 2013 through March 31st, 2013

 

Average amount of Equity invested in the Company during the Calculation Period:    $100 million

 

Adjusted Net Income during the Calculation Period (GAAP Basis):   $3,750,000

 

Hurdle Rate:    12% per annum

 

Amount Required to meet Hurdle Rate:   ( $100 million X 12% ) divided by 4 (quarterly) = $3,000,000

 

Incentive Fee:  Adjusted Net Income  less Hurdle Rate Amount = $750,000 X 35% Manager Split = $262,500

 

5.3.2 High Water Mark

 

Measurement Period = April 1, 2011 through current end of quarter assumed to be March 31, 2013  (note that High Water Mark is on a rolling 24 month look-back, pro rata for first 24 months of this Agreement)

 

Average Equity invested in the Company during the 24 month look back period = $100 million

 

Average Equity invested in the Company during the previous quarter (Calculation Period) = $100 million

 

Total Adjusted Net Income over the preceding 24 months = $16 million

 

Total Adjusted Net Income during the preceding quarter = $5.5 million

 

High Water Mark = 9.00% annual rate X 2 years X $100 million average Equity invested = $18 million

 

High Water Mark shortfall = $18 million less $16 million = $2 million shortfall

 

Adjusted Net Income for Calculation Period  = $5.5 million less $2 million = $3.5 million

 

Hurdle Rate:    12% per annum

 

Amount Required to meet Hurdle Rate:   ( $100 million X 12% ) divided by 4 (quarterly) = $3.0 million

 

Adjusted Net Income less Hurdle return = $3.5 million less $3.0 million = $500,000

 

Incentive Fee = $500,000 X 35% Manager Split = $175,000

 

 

B-1

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