SECOND AMENDED AND RESTATED MANAGEMENT AGREEMENT by and among PENNYMAC MORTGAGE INVESTMENT TRUST, PENNYMAC OPERATING PARTNERSHIP, L.P. and PNMAC CAPITAL MANAGEMENT, LLC Dated as of September 12, 2016

EX-10.1 2 pmt-ex101_8.htm EX-10.1 pmt-ex101_8.htm

 

Exhibit 10.1

 

Execution Version

 

SECOND AMENDED AND RESTATED

MANAGEMENT AGREEMENT

by and among

PENNYMAC MORTGAGE INVESTMENT TRUST,

PENNYMAC OPERATING PARTNERSHIP, L.P.

and

PNMAC CAPITAL MANAGEMENT, LLC

Dated as of September 12, 2016

 

 

 

 

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Execution Version

 

SECOND AMENDED AND RESTATED MANAGEMENT AGREEMENT, dated as of September 12, 2016, by and among PennyMac Mortgage Investment Trust, a Maryland real estate investment trust (the “Trust”), PennyMac Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), and PNMAC Capital Management, LLC, a Delaware limited liability company (the “Manager”).

W I T N E S S E T H:

WHEREAS, the Trust is a Maryland real estate investment trust which invests primarily in residential mortgage loans and mortgage-related assets and has qualified and intends to continue to qualify as a real estate investment trust for federal income tax purposes and will elect to receive the tax benefits accorded by Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”);

WHEREAS, the Trust conducts substantially all of its operations, and makes substantially all of its investments, through the Operating Partnership, which is a Subsidiary of the Trust;

WHEREAS, the Trust, the Operating Partnership and the Manager entered into the Amended and Restated Management Agreement dated as of February 1, 2013 (the “Original Agreement”) and Amendment No. 1 to Amended and Restated Management Agreement, dated as of December 15, 2015 (“Amendment No. 1,” and the Original Agreement, as amended by Amendment No. 1, the “Existing Management Agreement”), pursuant to which the Manager manages the business and investment affairs of the Trust and the Subsidiaries (as defined below) and performs services for the Trust and the Subsidiaries in the manner and on the terms set forth in the Existing Management Agreement; and

WHEREAS, the Trust, the Operating Partnership and the Manager have agreed to amend and restate the Existing Management Agreement on the terms set forth herein.

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

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

“AAA” has the meaning set forth in Section 7(f) hereof.

“Affiliate” means (1) any Person directly or indirectly controlling, controlled by or under common control with such other Person, (2) any executive officer or general partner of such other Person and (3) any legal entity for which such Person acts as an executive officer or general partner.

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

 

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“Allocation Policy” means the allocation policy for the Trust and the Manager, a copy of which is attached hereto as Exhibit A, as the same may be amended, restated, modified, supplemented or waived by the Independent Trustees as specified therein.

“Arbitrator” has the meaning set forth in Section 7(f) hereof.

“Automatic Renewal Term” has the meaning set forth in Section 11(b) hereof.

“Bankruptcy” means, with respect to any Person, (a) the filing by such Person of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under Title 11 of the United States Code or any other federal, state or foreign insolvency law, or such Person’s filing an answer consenting to or acquiescing in any such petition, (b) the making by such Person of any assignment for the benefit of its creditors, (c) the expiration of 60 days after the filing of an involuntary petition under Title 11 of the Unites States Code, an application for the appointment of a receiver for a material portion of the assets of such Person, or an involuntary petition seeking liquidation, reorganization, arrangement or readjustment of its debts under any other federal, state or foreign insolvency law, provided, that the same shall not have been vacated, set aside or stayed within such 60-day period or (d) the entry against it of a final and non-appealable order for relief under any bankruptcy, insolvency or similar law now or hereinafter in effect.

“Base Management Fee” means the base management fee, calculated and payable (in cash) quarterly in arrears, in an amount equal to the sum of (a) 1.50% per annum of the Trust’s Shareholders’ Equity up to $2.0 billion, (b) 1.375% per annum of the Trust’s Shareholders’ Equity above $2.0 billion and up to $5.0 billion and (c) 1.250% per annum of the Trust’s Shareholders’ Equity in excess of $5.0 billion.  For purposes of calculating the Base Management Fee, outstanding limited partnership interests in the Operating Partnership (other than limited partnership interests held by the Trust) shall be treated as outstanding Common Shares.

“Board of Trustees” means the board of trustees of the Trust.

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

“Change in Control of the Manager” means the occurrence of any of the following: (1) 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 or more Affiliates of the Manager,  Private National Mortgage Acceptance Company, LLC, the Trust or a Subsidiary; (2) 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 or more Affiliates of the Manager, Private National Mortgage Acceptance Company, LLC, the Trust or a Subsidiary, 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 securities of the

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Manager; or (3) Stanford L. Kurland ceases to be, or perform the duties of, Chief Executive Officer of the Manager and a replacement Chief Executive Officer, deemed suitable in the Trust’s discretion, has not been retained within a six month period from the date on which Stanford L. Kurland ceased to be, or perform the duties of, Chief Executive Officer.

“Claim” has the meaning set forth in Section 9(c) hereof.

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

“Common Shares” means the common shares of beneficial interest, par value $0.01, of the Trust.

“Conditional Payments” means the Manager Conditional Payment and the Underwriter Conditional Payment.

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

“Confidential Information” has the meaning set forth in Section 6(a) hereof.

“Dispute” has the meaning set forth in Section 7(f) hereof.

“Effective Termination Date” has the meaning set forth in Section 11(c) hereof.

“Excess Funds” has the meaning set forth in Section 2(u) hereof.

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

“Fannie MAE MBS Yield” means the average, during the Rolling Four Quarters Period, of the 30 year Fannie Mae current coupon as reported on Bloomberg under the function “MTGEFNCL INDEX” or such successor function.

“Fee Amendment” has the meaning set forth in Section 7(e) hereof.

“Fee Negotiations” has the meaning set forth in Section 7(e) hereof.

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

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

“High Watermark” means an amount initially equal to zero as of the February 1, 2013 effective date of the Existing Management Agreement, as adjusted pursuant to the terms thereof and as the same may be further adjusted as provided herein. If in any fiscal quarter the product of the Equity Amount and the lesser of the Fannie Mae MBS Yield and 8% exceeds the Return, the

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High Watermark shall be increased by the amount of such excess (the “High Watermark Rise”), and thereafter, the High Watermark shall be adjusted each fiscal quarter as follows: (a) if there is a High Watermark Rise for such fiscal quarter, the High Watermark shall be increased by the amount of such High Watermark Rise and (b) if the Return exceeds the product of the Equity Amount and the lesser of the Fannie Mae MBS Yield and 8% for such fiscal quarter, the High Watermark shall be decreased by the amount of such excess; provided that if in any fiscal quarter the Incentive Fee is greater than or equal to zero, the High Watermark shall be reset to zero.

“High Watermark Rise” has the meaning set forth in the definition of “High Watermark.”

“Incentive Fee” means an incentive management fee calculated and payable (in cash or Common Shares (subject to reasonable restrictions on sale and transfer, provided that (i) the Trust shall use commercially reasonable efforts to cause, at its sole expense, any Common Shares issued in payment of the Incentive Fee to be registered for sale under the Securities Act, (ii) the Manager may sell or distribute such Common Shares in the manner that it determines, consistent with the Trust’s Policy Against Insider Trading and any applicable securities laws, including pursuant to Rule 10b5-1 under the Exchange Act, and (iii) the amount of the Incentive Fee payable in any particular quarter that may be paid in Common Shares shall be limited to 50% of the Incentive Fee payable for such quarter), as determined by a majority of the Independent Trustees) each fiscal quarter in arrears in an amount equal to the sum of:

(a)10% per annum of the dollar amount by which the Return exceeds the High Watermark plus the product of:

(1)the weighted average of the issue price per Common Share of all of the Trust’s public offerings of Common Shares (including the Initial Public Offering) multiplied by the weighted average number of Common Shares outstanding (including, for the avoidance of doubt, restricted share units granted under one or more of the Trust’s equity incentive plans) in the four-quarter period (the “Equity Amount”); and

(2)8.0%,

but is less than or equal to the High Watermark plus the product of (i) the Equity Amount and (ii) 12%; plus

(b)15% per annum of the dollar amount by which the Return equals or exceeds the High Watermark plus the product of:

(1)the Equity Amount; and

(2)12%,

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but is less than the High Watermark plus the product of (i) the Equity Amount and (ii) 16%; plus

(c)20% per annum of the dollar amount by which the Return exceeds the High Watermark plus the product of:

(1)the Equity Amount; and

(2)16%.

For purposes of calculating the Incentive Fee, outstanding limited partnership interests in the Operating Partnership (other than limited partnership interests held by the Trust) shall be treated as outstanding Common Shares.

“Indemnified Party” has the meaning set forth in Section 9(b) hereof.

“Independent Trustee” means a member of the Board of Trustees who is not an officer or employee of the Manager or any Affiliate thereof and who otherwise is “independent” in accordance with the rules of the NYSE or such other securities exchange on which the Common Shares may be listed.

“Initial Public Offering” means the sale by the Trust of 14,706,327 Common Shares in the initial public offering of the Trust registered with the SEC.

“Initial Term” has the meaning set forth in Section 11(a) hereof.

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

“Investment Policies” means the Trust’s investment policies, a copy of which is attached hereto as Exhibit B, as the same may be amended, restated, modified, supplemented or waived by the Board of Trustees as specified therein.

“Losses” has the meaning set forth in Section 9(a) hereof.

“Manager Conditional Payment” means the conditional obligation of the Trust pursuant to the terms of the Underwriting Fee Reimbursement Agreement to reimburse the Manager an amount equal to the Manager Offering Payments (as such term is defined in the Underwriting Agreement) if the conditions set forth in the Underwriting Fee Reimbursement Agreement are met during the Conditional Payment Period (as defined in the Underwriting Fee Reimbursement Agreement).

“Manager Indemnified Party” has the meaning set forth in Section 9(a) hereof.

“Manager Permitted Disclosure Parties” has the meaning set forth in Section 6(a) hereof.

“Manager Related Party” means (a) any person who is, or at any time since the beginning of the Manager’s last fiscal year was, a manager or executive officer of the Manager or a nominee to become a manager of the Manager; (b) any person who is known to be the beneficial owner of more than 5% of any class of the Manager’s voting securities; (c) any

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immediate family member of any of the foregoing persons (which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of any of the foregoing persons); and (d) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.

“MBS Agreement” means the Amended and Restated Mortgage Banking Services Agreement, dated as of September 12, 2016, by and between PennyMac Loan Services and PennyMac Corp.

“MSR Recapture Agreement” means the Amended and Restated MSR Recapture Agreement entered into between PennyMac Loan Services and PennyMac Corp., dated as of September 12, 2016.

“Net Income” means net income or loss calculated in accordance with GAAP, and adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussion between the Manager and the Independent Trustees and after approval by a majority of the Independent Trustees.

“Net Income Offset” means any portion of a Net Loss from a period prior to the Rolling Four Quarters Period that has not been taken into account in reducing the amount of Net Income (but not below zero) from a period subsequent to the period in which such Net Loss occurred in connection with the calculation of the Incentive Fee for any period.

“Net Loss” means a net loss with regard to any period as calculated in accordance with the definition of Net Income.

“Nonrenewal Termination” has the meaning set forth in Section 11(c) hereof.

“Notice of Proposal to Negotiate” has the meaning set forth in Section 11(c) hereof.

“NYSE” means the New York Stock Exchange, Inc.

“PennyMac Brand” has the meaning set forth in Section 17(a) hereof.

“PennyMac Corp.” means PennyMac Corp., a Delaware corporation and Affiliate of the Trust.

“PennyMac Loan Services” means PennyMac Loan Services, LLC, a Delaware limited liability company and Affiliate of the Manager.

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

“Portfolio Management Services” has the meaning set forth in Section 2(b) hereof.

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

“Return” means the Trust’s Net Income, for the Rolling Four Quarters Period, plus the amount of any Incentive Fee included in the determination in the amount of such Net Income, if any, during any of the fiscal quarters in such Rolling Four Quarters Period and less the amount of any Net Income Offset.

“Rolling Four Quarters Period” means the most recently completed fiscal quarterly period and the three fiscal quarters immediately preceding the most recently completed fiscal quarter.

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

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

“Servicing Agreement” means the Third Amended and Restated Flow Servicing Agreement between the Operating Partnership and PennyMac Loan Services, dated as of September 12, 2016.

“Shareholder” means a shareholder of the Trust.

“Shareholders’ Equity” means:

(A)the sum of the net proceeds from any issuances of the Trust’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance); plus

(B)the Trust’s retained earnings at the end of such quarter; less

(C)any amount that the Trust pays for repurchases of its Common Shares (allocated on a pro rata daily basis for such repurchases during the fiscal quarter of any such repurchase); excluding

(D)one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between the Manager and the Independent Trustees and after approval by a majority of the Independent Trustees.

The Conditional Payments shall be taken into account in the calculation of Shareholders’ Equity only from and after the payment thereof, if any.

For purposes of calculating the Base Management Fee, outstanding limited partnership interests in the Operating Partnership (other than limited partnership interests held by the Trust) shall be treated as outstanding Common Shares.

“Subsidiary” means any subsidiary of the Trust, any partnership (including the Operating Partnership), the general partner of which is the Trust or any subsidiary of the Trust; any limited liability company, the managing member of which is the Trust or any subsidiary of the Trust; and any corporation or other entity of which a majority of (i) the voting power of the voting

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equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by the Trust or any subsidiary of the Trust.

“Termination Fee” means a termination fee equal to three (3) times the sum of (a) the average annual Base Management Fees and (b) the average annual (or, if the period is less than 24 months, annualized) Incentive Fees earned by the Manager during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination.

“Termination Notice” has the meaning set forth in Section 11(c) hereof.

“Trust Account” has the meaning set forth in Section 5 hereof.

“Trust Indemnified Party” has the meaning set forth in Section 9(b) hereof.

“Trust Permitted Disclosure Parties” has the meaning set forth in Section 6(b) hereof.

“Underwriter Conditional Payment” means the conditional obligation of the Trust pursuant to the terms of the Underwriting Agreement to pay to the Underwriters the Conditional Payment (as defined in the Underwriting Agreement) if the conditions set forth in the Underwriting Agreement are met during the Conditional Payment Period (as defined in the Underwriting Agreement).

“Underwriters” means the underwriters named in the Underwriting Agreement.

“Underwriting Agreement” means the purchase agreement, dated July 29, 2009 and as amended, among the Trust, the Operating Partnership, the Manager and the Underwriters relating to the Initial Public Offering.

“Underwriting Fee Reimbursement Agreement” means the Amended and Restated Underwriting Fee Reimbursement Agreement, dated as of February 1, 2013, among the Trust, the Operating Partnership and the Manager.

(b)As used herein, accounting terms relating to the Trust and the Subsidiaries, if any, not defined in Section 1(a) and accounting terms partly defined in Section 1(a), to the extent not defined, shall have the respective meanings given to them under GAAP.

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

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

Section 2.  Appointment and Duties of the Manager.  (a)  The Trust and the Operating Partnership hereby appoint the Manager to manage the investments and day-to-day operations of

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the Trust and the Subsidiaries, subject at all times to the further terms and conditions set forth in this Agreement and to the supervision of, and such further limitations or parameters as may be imposed from time to time by, the Board of Trustees.  The Manager hereby agrees to use its commercially reasonable efforts to perform each of the duties set forth herein, except where a specific standard of care is specified, in which case such specific standard of care shall apply.  The appointment of the Manager shall be exclusive to the Manager, except to the extent that the Manager elects, in its sole and absolute discretion, in accordance with the terms of this Agreement, to cause the duties of the Manager as set forth herein to be provided by third parties.

(b)The Manager, in its capacity as manager of the investments and the day-to-day operations of the Trust and the Subsidiaries, at all times will be subject to the supervision and direction of the Board of Trustees and will have only such functions and authority as the Board of Trustees may delegate to it, including, without limitation, the functions and authority identified herein and delegated to the Manager hereby.  The Manager will be responsible for the day-to-day operations of the Trust and the Subsidiaries and will perform (or cause to be performed) such services and activities relating to the operations of the Trust and the Subsidiaries, including the investments of the Trust and the Subsidiaries and their financing, as may be appropriate, which may include, without limitation:

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Without limiting the foregoing, the Manager will perform portfolio management services (the “Portfolio Management Services”) on behalf of the Trust and the Subsidiaries with respect to their investments. Such services will include, but not be limited to, consulting with the Trust and the Subsidiaries on the purchase and sale of, and other investment opportunities in connection with, the Trust’s and the Subsidiaries’ portfolio of assets; the collection of information and the submission of reports pertaining to the Trust’s and the Subsidiaries’ assets, interest rates and general economic conditions; periodic review and evaluation of the performance of the Trust’s and the Subsidiaries’ portfolio of assets; acting as liaison between the Trust and the Subsidiaries and banking, mortgage banking, investment banking and other parties with respect to the purchase, financing and disposition of assets; and other customary functions related to portfolio management.

(c)For the period and on the terms and conditions set forth in this Agreement, each of the Trust and the Operating Partnership hereby constitutes, appoints and authorizes the Manager as its true and lawful agent and attorney-in-fact and as the true and lawful agent and attorney-in-fact of any other Subsidiary, in its name, place and stead, to negotiate, execute, deliver and enter into such credit agreements, repurchase agreements, securitization agreements, agreements relating to borrowings under temporary programs established by the U.S. government, commercial paper, interest rate swap agreements, warehouse facilities, brokerage agreements, custodial agreements and such other agreements, instruments and authorizations on their behalf, on such terms and conditions as the Manager, acting in its sole and absolute discretion, deems necessary or appropriate. This power of attorney is deemed to be coupled with an interest.

(d)The Manager may enter into agreements with other parties, including its Affiliates, for the purpose of engaging one or more parties for and on behalf of the Trust and/or one or more of the Subsidiaries, and at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), to provide property management, asset management, securitization, leasing, development and/or other services to the Trust and the Subsidiaries (including, without limitation, Portfolio Management Services) pursuant to agreement(s) with terms which are then customary for agreements regarding the provision of services to companies that have assets similar in type, quality and value to the assets of the Trust and the Subsidiaries; provided, that (i) any agreements entered into with Affiliates of the Manager or any Manager Related Party shall be (A) on terms no more favorable to such Affiliates than would be obtained from a third party on an arm’s-length basis and (B) approved in advance by a majority of the Independent Trustees, (ii) with respect to Portfolio Management Services, (A) any such agreements shall be subject to the Trust’s prior written approval and (B)

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the Manager shall remain liable for the performance of such Portfolio Management Services, and (iii) with respect to all agreements or other arrangements with other parties, the Manager shall comply with the requirements of the Trust’s Related Party Transactions Policy. 

(e)To the extent that the Manager deems necessary or advisable, the Manager may, from time to time, propose to retain one or more additional entities for the provision of sub-advisory services to the Manager in order to enable the Manager to provide the services to the Trust and the Subsidiaries specified by this Agreement; provided, that any such agreement (1) shall be on terms and conditions substantially identical to the terms and conditions of this Agreement or otherwise not adverse to the Trust and the Subsidiaries, (2) shall not result in an increased Base Management Fee, Incentive Fee or expenses payable hereunder and (3) shall be approved by a majority of the Independent Trustees.

(f)The Manager may retain, for and on behalf of the Trust and/or one or more of the Subsidiaries, and at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership), such services of accountants, legal counsel, appraisers, insurers, brokers, transfer agents, registrars, financial printers, developers, investment banks, financial advisors, internal audit service providers, due diligence firms, underwriting review firms, banks and other lenders, surveyors, engineers, environmental and seismic consultants, information technology consultants, tax advisors and preparers, other consultants, agents, contractors, vendors, advisors and others as the Manager deems necessary or advisable in connection with the management and operations of the Trust and the Subsidiaries. Notwithstanding anything contained herein to the contrary, the Manager shall have the right to cause any such services to be rendered by its employees or Affiliates. Except as otherwise provided herein, the Operating Partnership (or such other Subsidiary) shall pay or reimburse the Manager or its Affiliates performing such services for the cost thereof; provided, that such costs and reimbursements are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis.

(g)The Manager may effect transactions by or through the agency of another person with it or its Affiliates which have an arrangement under which that party or its Affiliates will from time to time provide to or procure for the Manager and/or its Affiliates goods, services or other benefits (including, but not limited to, research and advisory services; economic and political analysis, including valuation and performance measurement; market analysis, data and quotation services; computer hardware and software incidental to the above goods and services; clearing and custodian services and investment related publications), the nature of which is such that provision can reasonably be expected to benefit the Trust and the Subsidiaries as a whole and may contribute to an improvement in the performance of the Trust and the Subsidiaries or the Manager or its Affiliates in providing services to the Trust and the Subsidiaries on terms that no direct payment is made but instead the Manager and/or its Affiliates undertake to place business with that party.

(h)In executing portfolio transactions and selecting brokers or dealers, the Manager will use its best efforts to seek on behalf of the Trust and the Subsidiaries the best overall terms available. In assessing the best overall terms available for any transaction, the

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Manager shall consider all factors that it deems relevant, including, without limitation, the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker or dealer to execute a particular transaction, the Manager may also consider whether such broker or dealer furnishes research and other information or services to the Manager. 

(i)The Manager has no duty or obligation to seek in advance competitive bidding for the most favorable commission rate applicable to any particular purchase, sale or other transaction, or to select any broker-dealer on the basis of its purported or “posted” commission rate, but will endeavor to be aware of the current level of charges of eligible broker-dealers and to minimize the expense incurred for effecting purchases, sales and other transactions to the extent consistent with the interests and policies of the Trust and the Subsidiaries.  Although the Manager will generally seek competitive commission rates, it is not required to pay the lowest commission or commission equivalent, provided, that such decision is made in good faith to promote the best interests of the Trust and the Subsidiaries.

(j)The Manager shall refrain from any action that, in its sole judgment made in good faith, (1) is not in compliance with the Investment Policies, (2) would adversely affect the qualification of the Trust as a REIT under the Code or the status of the Trust or any Subsidiary as an entity excluded or exempted from investment company status under the Investment Company Act, or (3) would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Trust or any Subsidiary or of any exchange on which the securities of the Trust may be listed or that would otherwise not be permitted by the Governing Instruments of the Trust or such Subsidiary.  If the Manager is ordered to take any action by the Board of Trustees, the Manager shall promptly notify the Board of Trustees if it is the Manager’s judgment that such action would adversely affect such status or violate any such law, rule or regulation or the Governing Instruments.  Notwithstanding the foregoing, the Manager, its Affiliates and their respective managers, officers, trustees, directors, employees and members and any Person providing sub-advisory services to the Manager shall not be liable to the Trust, the Subsidiaries, the Board of Trustees, the Shareholders or the interest holders in any Subsidiary for any act or omission by such Person except as provided in Section 9 of this Agreement.

(k)The Trust (including the Board of Trustees) and the Operating Partnership agree to take all actions reasonably required to permit and enable the Manager to carry out its duties and obligations under this Agreement, including, without limitation, all steps reasonably necessary to allow the Manager to file any registration statement or other filing required to be made under the Securities Act, the Exchange Act, rules of the NYSE or such other securities exchange on which the Common Shares may be listed, the Code or other applicable law, rule or regulation on behalf of the Trust and any applicable Subsidiary in a timely manner.  The Trust and the Operating Partnership further agree to use commercially reasonable efforts to make available to the Manager all resources, information and materials reasonably requested by the Manager to enable the Manager to satisfy its obligations hereunder, including its obligations to deliver financial statements and any other information or reports with respect to the Trust and the Subsidiaries.  If the Manager is not able to provide a service, or in the reasonable judgment of the

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Manager it is not prudent to provide a service, without the approval of the Board of Trustees, as applicable, then the Manager shall be excused from providing such service (and shall not be in breach of this Agreement) until the applicable approval has been obtained, which the Manager shall seek promptly upon determining an approval is required. 

(l)The Manager shall require each seller or transferor of investment assets to the Trust and the Subsidiaries to make such representations and warranties regarding such assets as may, in the judgment of the Manager, be necessary and appropriate. In addition, the Manager shall take such other action as it deems necessary or appropriate with regard to the protection of the investments of the Trust and the Subsidiaries.

(m)The Board of Trustees shall periodically review the Investment Policies and the Trust’s and the Subsidiaries’ portfolio of investments but will not review each proposed investment, except as otherwise provided herein. If a majority of the Independent Trustees determines in such periodic review of transactions that a particular transaction does not comply with the Investment Policies, then a majority of the Independent Trustees will consider what corrective action, if any, can be taken. The Manager shall be permitted to rely upon the direction of the Secretary of the Trust to evidence the approval of the Board of Trustees or the Independent Trustees with respect to a proposed investment.

(n)Neither the Trust nor the Subsidiaries shall invest in any security structured or issued by an entity managed by the Manager or any Affiliate thereof, unless (i) the investment is made in accordance with the Investment Policies; (ii) such investment is approved in advance by a majority of the Independent Trustees; and (iii) the investment is made in accordance with applicable laws.

(o)Reporting Requirements.

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(p)Managers, officers, trustees, directors, members, employees and agents of the Manager or Affiliates of the Manager may serve as trustees, officers, agents, nominees or signatories for the Trust and the Subsidiaries, to the extent permitted by their Governing Instruments, as from time to time amended, or by any resolutions duly adopted by the Board of Trustees pursuant to the Trust’s Governing Instruments or, to the extent applicable, the governing body of any Subsidiary, pursuant to the Governing Instruments of such Subsidiary.  When executing documents or otherwise acting in such capacities for the Trust or any Subsidiary, such Persons shall indicate in what capacity they are executing on behalf of the Trust or such Subsidiary.  Without limiting the foregoing, but subject to Section 13 below, the Manager will be obligated to supply the Trust with a management team, including a Chief Executive Officer, Chief Financial Officer and Chief Operating Officer or similar positions, along with appropriate support personnel, to provide the management services to be provided by the Manager to the Trust and the Subsidiaries hereunder, who shall devote such of their time to the management of the Trust and the Subsidiaries as is necessary and appropriate, commensurate with the level of activity of the Trust from time to time.

(q)The Manager shall provide personnel for service on an investment or similar type of committee.

(r)The Manager shall maintain reasonable and customary “errors and omissions” insurance coverage and other customary insurance coverage, in an amount which is comparable to that customarily maintained by other managers or servicers of similar assets.

(s)The Manager shall provide such internal audit, compliance and control services as may be required for the Trust and the Subsidiaries to comply with applicable law (including the Securities Act and the Exchange Act), regulation (including SEC regulations) and the rules and requirements of the NYSE or such other securities exchange on which the Common

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Shares may be listed and as otherwise reasonably requested by the Trust, the Operating Partnership or the Board of Trustees from time to time. 

(t)The Manager acknowledges receipt of the Trust’s Code of Business Conduct and Ethics and Policy Against Insider Trading (collectively, the “Conduct Policies”) and agrees to require its officers and employees who provide services to the Trust to comply with such Conduct Policies in the performance of such services hereunder or such comparable policies as shall in substance hold officers and employees of the Manager to at least the standards of conduct set forth in the Conduct Policies.

(u)Notwithstanding anything contained in this Agreement to the contrary, except to the extent that the payment of additional moneys is proven by the Trust to have been required as a direct result of the Manager’s acts or omissions which result in the right of the Trust to terminate this Agreement pursuant to Section 13 of this Agreement, the Manager shall not be required to expend money (“Excess Funds”) in connection with any expenses that are required to be paid for or reimbursed by the Operating Partnership (or any other Subsidiary) pursuant to Section 8 in excess of that contained in any applicable Trust Account (as herein defined) or otherwise made available by the Operating Partnership (or such other Subsidiary) to be expended by the Manager hereunder.  Failure of the Manager to expend Excess Funds out-of-pocket shall not give rise or be a contributing factor to the right of the Trust under Section 11(c) of this Agreement to terminate this Agreement due to the Manager’s unsatisfactory performance.

(v)In performing its duties under this Section 2, the Manager shall be entitled to rely reasonably on qualified experts and professionals (including, without limitation, accountants, legal counsel and other professional service providers) hired by the Manager at the sole cost and expense of the Operating Partnership (except to the extent determined by the Operating Partnership, in its sole discretion, to be the expense of a Subsidiary other than the Operating Partnership).

Section 3.  Additional Activities of the Manager; Right of First Refusal.  Except as otherwise provided in this Section 3, the Allocation Policy and the Investment Policies, nothing in this Agreement shall (i) prevent the Manager or any of its Affiliates, managers, officers, trustees, directors, employees or members from engaging in other businesses or from rendering services of any kind to any other Person or entity, whether or not the investment objectives or policies of any such other Person or entity are similar to those of the Trust or (ii) in any way bind or restrict the Manager or any of its Affiliates, managers, officers, trustees, directors, employees or members from buying, selling or trading any securities or commodities for their own accounts or for the account of others for whom the Manager or any of its Affiliates, managers, officers, trustees, directors, employees or members may be acting.  Notwithstanding the foregoing, during the term of this Agreement, (i) the Manager and its Affiliates shall perform the services identified herein exclusively for the benefit of the Trust and (ii) neither the Manager nor any of its Affiliates may act as the manager to, or otherwise provide investment advisory services to, any other entity a primary investment objective of which is to invest in distressed residential mortgage loans, in each case excluding (a) the two private fund vehicles managed by the Manager as of the date of this Agreement, (b) any entity in which the Trust or any of its Subsidiaries is an investor and (c) any government-related entity; provided, however, that the Manager and/or any of its Affiliates may act as manager to an entity that it would otherwise not

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be permitted to manage pursuant to the foregoing if the Trust and its Subsidiaries are not able to pursue additional investment in distressed residential mortgage loans due to limitations on available capital and the Trust and its Subsidiaries determine not to raise additional capital, as long as the Independent Trustees do not determine that such activities would be detrimental to the Trust and its Subsidiaries.

Prior to the undertaking by the Manager or its Affiliates of any new investment opportunity or any other business opportunity requiring a source of capital with respect to which the Manager or its Affiliates will earn a management, advisory, consulting or similar fee, the Manager shall present to the Trust such new opportunity and the material terms on which the Manager proposes to provide services to the Trust in pursuing such opportunity on behalf of the Trust.  If the Board of Trustees determines that it is in the best interest of the Trust to pursue such opportunity, the Trust shall cause notice of such determination to be given to the Manager within 10 days of the presentation of such opportunity by the Manager to the Trust.  If the Manager provides such notice, the Trust and the Manager shall negotiate in good faith to agree to the terms and documentation on which the Manager would provide services to the Trust in pursuing the opportunity.  In the event the Trust and the Manager are unable to reach agreement on such terms and documentation after such good faith negotiations, the Manager may pursue the opportunity with third parties, provided, however, that under such circumstances the material terms on which the Manager provides services to third parties in pursuing the opportunity shall be no more favorable to such parties than the terms offered to the Trust unless the Manager presents such more favorable terms to the Trust to reconsider such opportunity in accordance with this paragraph prior to proceeding with the third parties.

While information and recommendations supplied to the Trust and the Subsidiaries shall, in the Manager’s reasonable and good faith judgment, be appropriate under the circumstances and in light of the investment objectives and policies of the Trust and the Subsidiaries, they may be different from the information and recommendations supplied by the Manager or any Affiliate of the Manager to others.  The Trust and the Subsidiaries shall be entitled to equitable treatment under the circumstances in receiving information, recommendations and any other services, but the Trust and the Operating Partnership recognize that the Trust and the Subsidiaries are not entitled to receive preferential treatment as compared with the treatment given by the Manager or any Affiliate of the Manager to others.  The Trust and the Subsidiaries shall have the benefit of the Manager’s best judgment and effort in rendering services hereunder and, in furtherance of the foregoing, the Manager shall not undertake activities that, in its good faith judgment, will adversely affect the performance of its obligations under this Agreement.

Section 4.  Agency. The Manager shall act as agent of the Trust and the Subsidiaries in making, acquiring, financing and disposing of investments, disbursing and collecting the funds of the Trust and the Subsidiaries, paying the debts and fulfilling the obligations of the Trust and the Subsidiaries, supervising the performance of professionals engaged by or on behalf of the Trust and the Subsidiaries and handling, prosecuting and settling any claims of or against the Trust and the Subsidiaries, the Board of Trustees, holders of the Trust’s or any Subsidiary’s securities or representatives or properties of the Trust and the Subsidiaries.

Section 5.  Bank Accounts.  At the direction of the Board of Trustees, the Manager may establish and maintain one or more bank accounts in the name of the Trust or any Subsidiary

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(any such account, a “Trust Account”), and may collect and deposit into any such account or accounts, and disburse funds from any such account or accounts, under such terms and conditions as the Board of Trustees may approve; and the Manager shall from time to time render appropriate accountings of such collections and payments to the Board of Trustees and, upon request, to the auditors of the Trust or any Subsidiary.

Section 6.  Records; Confidentiality. (a)  The Manager shall maintain appropriate books of accounts and records relating to services performed hereunder, and such books of account and records shall be accessible for inspection by representatives of the Trust or any Subsidiary at any time during normal business hours upon reasonable advance notice.  The Manager shall keep confidential any and all non-public information, written or oral, obtained by it in connection with the services rendered hereunder (“Confidential Information”) and shall not use Confidential Information except in furtherance of its duties under this Agreement or disclose Confidential Information, in whole or in part, to any Person other than (1) to its Affiliates, managers, officers, trustees, directors, employees, members, agents, representatives or advisors who need to know such Confidential Information for the purpose of rendering services hereunder, (2) to appraisers, financing sources and others in the ordinary course of the Trust’s and any Subsidiary’s business ((1) and (2) collectively, “Manager Permitted Disclosure Parties”), (3) in connection with any governmental or regulatory filings of the Trust or any Subsidiary or disclosure or presentations to Trust investors, (4) to governmental officials having jurisdiction over the Trust, (5) as required by law or legal process to which the Manager or any Person to whom disclosure is permitted hereunder is a party, or (6) with the consent of the Board of Trustees.  The Manager agrees to inform each of its Manager Permitted Disclosure Parties of the non-public nature of the Confidential Information and to direct such Persons to treat such Confidential Information in accordance with the terms hereof.  Nothing herein shall prevent the Manager from disclosing Confidential Information (1) upon the order of any court or administrative agency, (2) upon the request or demand of, or pursuant to any law or regulation, any regulatory agency or authority, (3) to the extent reasonably required in connection with the exercise of any remedy hereunder, or (4) to its legal counsel or independent auditors; provided, however, that with respect to clauses (1) and (2), it is agreed that the Manager will provide the Trust and the Operating Partnership with prompt written notice of such order, request or demand so that the Trust and the Operating Partnership may seek an appropriate protective order and/or waive the Manager’s compliance with the provisions of this Agreement.  If, failing the entry of a protective order or the receipt of a waiver hereunder, the Manager is, in the opinion of counsel, required to disclose Confidential Information, the Manager may disclose only that portion of such information that its counsel advises is legally required without liability hereunder; provided, that the Manager agrees to exercise its best efforts to obtain reliable assurance that confidential treatment will be accorded such information.  Notwithstanding anything herein to the contrary, each of the following shall be deemed to be excluded from the provisions hereof:  any Confidential Information that (A) is available to the public from a source other than the Manager, (B) is released in writing by the Trust to the public or to Persons who are not under similar obligation of confidentiality to the Trust and the Subsidiaries, or (C) is obtained by the Manager from a third party without breach by such third party of an obligation of confidence with respect to the Confidential Information disclosed.

(b)Each of the Trust and the Operating Partnership shall keep confidential, and shall cause any other Subsidiary to keep confidential, any and all Confidential Information

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and shall not use, and shall cause any other Subsidiary not to use, Confidential Information except in furtherance of the terms of this Agreement or disclose Confidential Information, in whole or in part, to any Person other than (1) to its Affiliates, officers, trustees, directors, employees, members, agents, representatives or advisors who need to know such Confidential Information for the purpose of fulfilling the Trust’s and the Operating Partnership’s obligations hereunder (collectively, “Trust Permitted Disclosure Parties”), (2) as required by law or legal process to which the Trust or any Subsidiary or any Person to whom disclosure is permitted hereunder is a party, or (3) with the consent of the Manager.  Each of the Trust and the Operating Partnership agrees to (1) inform each of its Trust Permitted Disclosure Parties of the non-public nature of the Confidential Information and to direct such Persons to treat such Confidential Information in accordance with the terms hereof and (2) not disclose any Confidential Information to its Trust Permitted Disclosure Parties upon the termination of this Agreement in accordance with Section 11 hereof.  Nothing herein shall prevent the Trust or any Subsidiary from disclosing Confidential Information (1) upon the order of any court or administrative agency, (2) upon the request or demand of, or pursuant to any law or regulation, any regulatory agency or authority, (3) to the extent reasonably required in connection with the exercise of any remedy hereunder, or (4) to its legal counsel or independent auditors; provided, however, that with respect to clauses (1) and (2), it is agreed that the Trust and the Operating Partnership will provide the Manager with prompt written notice of such order, request or demand so that the Manager may seek an appropriate protective order and/or waive the Trust’s and the Operating Partnership’s compliance with the provisions of this Section.  If, failing the entry of a protective order or the receipt of a waiver hereunder, the Trust or any Subsidiary is, in the opinion of counsel, required to disclose Confidential Information, the Trust or such Subsidiary may disclose only that portion of such information that its counsel advises is legally required without liability hereunder; provided, that each of the Trust and the Operating Partnership shall exercise, and shall cause any other Subsidiary to exercise, its best efforts to obtain reliable assurance that confidential treatment will be accorded such information.  Notwithstanding anything herein to the contrary, each of the following shall be deemed to be excluded from the provisions hereof:  any Confidential Information that (A) is available to the public from a source other than the Trust or any Subsidiary, (B) is released in writing by the Manager to the public or to Persons who are not under similar obligation of confidentiality to the Manager, or (C) is obtained by the Trust or any Subsidiary from a third party without breach by such third party of an obligation of confidence with respect to the Confidential Information disclosed.  For the avoidance of doubt, information about the systems, employees, policies, procedures and investment portfolio (other than investments in which the Trust or any Subsidiary and the Manager have co-invested) shall be deemed to be included within the meaning of “Confidential Information” for purposes of the Trust’s and the Subsidiaries’ obligations pursuant to this Section 6(b). 

(c)The provisions of this Section 6 shall survive the expiration or earlier termination of this Agreement for a period of one year.

Section 7.  Compensation.  (a)  For the services rendered under this Agreement, the Operating Partnership shall pay to the Manager the Base Management Fee and the Incentive Fee.  Notwithstanding the foregoing or any other provision contained in this Agreement, in the event that any of the services provided hereunder by the Manager are rendered to or for the benefit of any Subsidiary other than the Operating Partnership, then, in the sole discretion of the Operating

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Partnership, a portion of the Base Management Fee and/or the Incentive Fee, as determined by the Operating Partnership, shall be payable by such Subsidiary.

(b)The parties acknowledge that the Base Management Fee is intended to compensate the Manager for the costs and expenses of its executive officers and employees (and certain related overhead and employee costs not otherwise reimbursable under Section 8 below) incurred in providing to the Trust the investment advisory services and certain general management services rendered under this Agreement.

(c)The Base Management Fee shall be payable in arrears in cash, in quarterly installments commencing with the fiscal quarter in which this Agreement was executed (with such initial payment pro-rated based on the number of days during such quarter that this Agreement was in effect).   The Manager shall calculate each installment of the Base Management Fee within thirty (30) days after the end of the fiscal quarter with respect to which such installment is payable.  A copy of the computations made by the Manager to calculate such installment shall thereafter, for informational purposes only, promptly be delivered to the Board of Trustees and, upon such delivery, payment of such installment of the Base Management Fee shown therein shall be due and payable no later than the date which is five (5) Business Days after the date of delivery to the Board of Trustees of such computations.

(d)The Manager shall compute each installment of the Incentive Fee within 30 days after the end of the fiscal quarter with respect to which such installment is payable.  A copy of the computations made by the Manager to calculate such installment shall thereafter, for informational purposes only, promptly be delivered to the Board of Trustees and, upon such delivery, payment of such installment of the Incentive Fee shown therein shall be due and payable no later than the date which is five (5) Business Days after the date of delivery to the Board of Trustees of such computations.

(e)Notwithstanding anything to the contrary contained herein, upon the written request (a “Fee Negotiation Request”) of the Company or the Manager following a determination by the Company or the Manager that the rates of compensation payable to the Manager hereunder differ materially from market rates of compensation for services comparable to those provided hereunder, which request includes a proposal for revised rates of compensation hereunder, the parties hereto shall negotiate in good faith to amend the provisions of this Agreement relating to the compensation of the Manager  in order to cause such compensation to be materially consistent with market rates of compensation for services comparable to those provided hereunder (a “Fee Amendment”); provided, however, that no such request shall be made until the second anniversary of the effective date of this Agreement, after which time each party may make such request (i) once with respect to fees to be paid during the remainder of the Initial Term, which request shall be made prior to the expiration of the Initial Term, and (ii) once with respect to fees to be paid during any Automatic Renewal Term, which request shall be made at least 210 days prior to the start of such Automatic Renewal Term.  If the parties are unable to reach agreement on the terms of a Fee Amendment within thirty (30) days of the date of delivery of the relevant Fee Negotiation Request, then the terms of such Fee Amendment shall be determined by final and binding arbitration in accordance with Section 7(f).  

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(f)All disputes, differences and controversies of the Company or the Manager relating to a Fee Amendment (individually, a “Dispute” and, collectively, “Disputes”) shall be resolved by final and binding arbitration administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules, subject to the following provisions: 

Section 8.  Expenses of the Trust.  (a)  The Manager shall be responsible for compensation and related expenses of the Manager’s employees (including the officers of the

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Trust who are also employees of the Manager), including, without limitation, salaries, bonus and other wages, payroll taxes and the cost of employee benefit plans of such personnel; provided, however, that the Operating Partnership (or any other Subsidiary, as provided below) shall pay or reimburse the Manager or any Affiliate of the Manager for the costs and expenses (including any employment expenses) incurred in connection with the performance by the Manager or such Affiliate of any services performed by the Manager or such Affiliate pursuant to Section 2(d) or 2(f) hereof.

(b)The Trust and the Subsidiaries shall pay all of their costs and expenses and the Operating Partnership (or any other Subsidiary, as provided below) shall reimburse the Manager or its Affiliates for expenses of the Manager and its Affiliates incurred on behalf of the Trust or any Subsidiary, excepting only those expenses that are specifically the responsibility of the Manager pursuant to Section 8(a) of this Agreement.  Without limiting the generality of the foregoing, it is specifically agreed that the following costs and expenses of the Trust or any Subsidiary shall be paid by the Operating Partnership (or such other Subsidiary) and shall not be paid by the Manager or Affiliates of the Manager:

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In addition, the Operating Partnership (or any other Subsidiary, as provided below) will be required to pay the Trust’s and the Subsidiaries’ pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Manager and its Affiliates required for the Trust’s and the Subsidiaries’ operations. These expenses will be allocated between the Manager, on the one hand, and the Operating Partnership (or such other Subsidiary), on the other hand, based on the ratio of the Trust’s and the Subsidiaries’ proportion of gross assets compared to all remaining gross assets managed by the Manager as calculated at each fiscal quarter end. The Manager, the Trust and the Operating Partnership will modify this allocation methodology, subject to the Board of Trustees’ approval, if the allocation becomes inequitable.

Notwithstanding the foregoing or any other provision contained in this Agreement, in the event that any of the services provided hereunder by the Manager are rendered to or for the benefit of any Subsidiary other than the Operating Partnership, then, in the sole discretion of the Operating Partnership, a portion of the expense reimbursements to the Manager and/or its Affiliates hereunder, as determined by the Operating Partnership, shall be payable by such Subsidiary.

(c)Costs and expenses incurred by the Manager or an Affiliate thereof on behalf of the Trust or any Subsidiary shall be reimbursed quarterly to the Manager.  The Manager shall prepare a written statement in reasonable detail documenting the costs and expenses of the Trust and the Subsidiaries and those incurred by the Manager on behalf of the Trust or any Subsidiary during each fiscal quarter, and shall deliver such written statement to the Trust within 30 days after the end of each fiscal quarter.  The Operating Partnership (or any other Subsidiary, as provided in the immediately preceding paragraph) shall pay all amounts payable to the Manager pursuant to this Section 8 within five (5) Business Days after the date of delivery of such written statement without demand, deduction, offset or delay.  Cost and expense reimbursement to the Manager shall be subject to adjustment at the end of each calendar year in connection with the annual audit of the Trust and the Subsidiaries.  The provisions of this Section 8 shall survive the expiration or earlier termination of this Agreement to the extent such expenses have previously been incurred or are incurred in connection with such expiration or termination.

(d)Notwithstanding the foregoing, the Manager may, at its option, elect not to seek reimbursement for certain expenses during a given quarterly period, which determination shall not be deemed to construe a waiver of reimbursement for similar expenses in future periods.

Section 9.  Limits of the Manager’s Responsibility; Indemnification.  (a)  The Manager assumes no responsibility under this Agreement other than to provide the services specified hereunder in good faith and shall not be responsible for any action of the Board of Trustees in following or declining to follow any advice or recommendations of the Manager; provided that to the extent that officers of the Manager also serve as officers of the Trust, such

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officers shall owe the Trust duties under Maryland law in their capacity as officers of the Trust, which may include the duty to exercise reasonable care in the performance of such officers’ responsibilities, as well as duties of loyalty, good faith and candid disclosure.  None of the Manager or its Affiliates or their respective managers, officers, trustees, directors, employees or members or any Person providing sub-advisory services to the Manager will be liable to the Trust, any Subsidiary, the Board of Trustees, or the Shareholders or interest holders of any Subsidiary for any acts or omissions performed under this Agreement, except because of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of the Manager’s duties under this Agreement.  The Trust and the Operating Partnership shall, to the full extent lawful, reimburse, indemnify and hold harmless the Manager and its Affiliates and their respective managers, officers, trustees, directors, employees and members and any Person providing sub-advisory services to the Manager (each, a “Manager Indemnified Party”), with respect to all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including reasonable attorneys’ fees) (collectively “Losses”) in respect of or arising from any acts or omissions of such Manager Indemnified Party, performed in good faith under this Agreement and not constituting bad faith, willful misconduct, gross negligence or reckless disregard of the duties of the Manager under this Agreement.

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

(c)In case any such claim, suit, action or proceeding (a “Claim”) is brought against any Indemnified Party in respect of which indemnification may be sought by such Indemnified Party pursuant hereto, the Indemnified Party shall give prompt written notice thereof to the indemnifying party, which notice shall include all documents and information in the possession of or under the control of such Indemnified Party reasonably necessary for the evaluation and/or defense of such Claim and shall specifically state that indemnification for such Claim is being sought under this Section; provided, however, that the failure of the Indemnified Party to so notify the indemnifying party shall not limit or affect such Indemnified Party’s rights to be indemnified pursuant to this Section.  Upon receipt of such notice of Claim (together with such documents and information from such Indemnified Party), the indemnifying party shall, at its sole cost and expense, in good faith defend any such Claim with counsel reasonably satisfactory to such Indemnified Party, which counsel may, without limiting the rights of such Indemnified Party pursuant to the next succeeding sentence of this Section, also represent the indemnifying party in such investigation, action or proceeding.  In the alternative, such Indemnified Party may elect to conduct the defense of the Claim, if (1) such Indemnified Party reasonably determines that the conduct of its defense by the indemnifying party could be materially prejudicial to its interests, (2) the indemnifying party refuses to defend (or fails to give written notice to the Indemnified Party within ten (10) days of receipt of a notice of Claim that the indemnifying party assumes such defense), or (3) the indemnifying party shall have failed, in such Indemnified Party’s reasonable judgment, to defend the Claim in good faith.  The

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indemnifying party may settle any Claim against such Indemnified Party without such Indemnified Party’s consent, provided, (1) such settlement is without any Losses whatsoever to such Indemnified Party, (2) the settlement does not include or require any admission of liability or culpability by such Indemnified Party and (3) the indemnifying party obtains an effective written release of liability for such Indemnified Party from the party to the Claim with whom such settlement is being made, which release must be reasonably acceptable to such Indemnified Party, and a dismissal with prejudice with respect to all claims made by the party against such Indemnified Party in connection with such Claim.  The applicable Indemnified Party shall reasonably cooperate with the indemnifying party, at the indemnifying party’s sole cost and expense, in connection with the defense or settlement of any Claim in accordance with the terms hereof.  If such Indemnified Party is entitled pursuant to this Section to elect to defend such Claim by counsel of its own choosing and so elects, then the indemnifying party shall be responsible for any good faith settlement of such Claim entered into by such Indemnified Party.  Except as provided in the immediately preceding sentence, no Indemnified Party may pay or settle any Claim and seek reimbursement therefor under this Section. 

(d)The provisions of this Section 9 shall survive the expiration or earlier termination of this Agreement.

Section 10.  No Joint Venture.  The Trust, the Operating Partnership and the Manager are not partners or joint venturers with each other and nothing herein shall be construed to make them such partners or joint venturers or impose any liability as such on any of them.

Section 11.  Term; Termination.

(a)Initial Term.  This Agreement shall become effective on the date hereof and shall continue in operation, unless terminated in accordance with the terms hereof, until September 12, 2020 (the “Initial Term”).

(b)Automatic Renewal Terms.  After the Initial Term, this Agreement shall be deemed renewed automatically every 18 months for an additional 18 month period (an “Automatic Renewal Term”) unless the Trust or the Manager terminates this Agreement in accordance with Section 11(c) of this Agreement.

(c)Termination of this Agreement.  Notwithstanding any other provision of this Agreement to the contrary, upon the expiration of the Initial Term or any Automatic Renewal Term and upon at least 180 days’ prior written notice to the Manager or the Trust, as applicable (the “Termination Notice”), either (A) the Trust (without cause), upon the affirmative vote of at least two-thirds of the Independent Trustees or by a vote of the holders of at least two-thirds of the Trust’s outstanding Common Shares (other than those Common Shares held by the Manager or any Affiliate thereof), in each case based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Trust and the Subsidiaries or (2) the determination that the compensation payable to the Manager under this Agreement is not fair; or (B) the Manager (without cause) may, in connection with the expiration of the Initial Term or any Automatic Renewal Term, decline to renew this Agreement (any such nonrenewal, a “Nonrenewal Termination”); provided, that the Trust shall not have the right to terminate this Agreement under clause (2) above if the Manager agrees to continue to provide services under

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this Agreement at fees that at least two-thirds of the Independent Trustees determine to be fair pursuant to the procedures set forth below. 

If the Trust (but not the Manager) issues the Termination Notice, the Operating Partnership shall be obligated to pay the Manager the Termination Fee within 90 days of the last day of the Initial Term or Automatic Renewal Term, as applicable (the “Effective Termination Date”); provided, however, that in the event a Termination Notice is given in connection with a determination that the compensation payable to the Manager is not fair, the Manager shall have the right to renegotiate such compensation by delivering to the Trust and the Operating Partnership, no fewer than 45 days prior to the prospective Effective Termination Date, written notice (any such notice, a “Notice of Proposal to Negotiate”) of its intention to renegotiate its compensation under this Agreement.  Thereupon, the Trust (represented by the Independent Trustees), the Operating Partnership and the Manager shall endeavor to negotiate in good faith the revised compensation payable to the Manager under this Agreement. Provided that the Manager, the Trust and the Operating Partnership agree to the terms of the revised compensation to be payable to the Manager within 45 days following the receipt of the Notice of Proposal to Negotiate, the Termination Notice shall be deemed of no force and effect and this Agreement shall continue in full force and effect on the terms stated in this Agreement, except that the compensation payable to the Manager hereunder shall be the revised compensation then agreed upon by the parties to this Agreement. The Trust, the Operating Partnership and the Manager agree to execute and deliver an amendment to this Agreement setting forth such revised compensation promptly upon reaching an agreement regarding the same. In the event that the Trust, the Operating Partnership and the Manager are unable to agree to the terms of the revised compensation to be payable to the Manager during such 45-day period, this Agreement shall terminate, such termination to be effective on the date which is the later of (A) 10 days following the end of such 45-day period and (B) the Effective Termination Date originally set forth in the Termination Notice.  In the event of any Nonrenewal Termination, after delivery of the Termination Notice, the Manager shall thereafter have the authority to invest only such capital that represents the return of capital resulting from the liquidation or repayment of investments of the Trust or any Subsidiary existing at the time of the Termination Notice, and subject to the Investment Policies and all other existing investment and other policies of the Trust.  The Manager shall cooperate with the Trust and the Subsidiaries in executing an orderly transition of the management of the Trust’s assets to a new manager.  The Trust may terminate this Agreement for cause pursuant to Section 13 of this Agreement even after a Nonrenewal Termination and no Termination Fee shall be payable.

(d)If (i) either of the MBS Agreement or the MSR Recapture Agreement is terminated by PennyMac Corp. without cause as provided in each such agreement or (ii) the Servicing Agreement is terminated by the Operating Partnership without cause as provided in such agreement, the Manager shall have the right to terminate this Agreement without cause upon notice to the Trust, provided that if such termination occurs due to a termination of the MBS Agreement, MSR Recapture Agreement or Servicing Agreement at any time other than at the end of the Initial Term or any Automatic Renewal Term, the Operating Partnership shall be obligated to pay the Manager the Termination Fee within 90 days of receipt of such notice from the Manager.

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(e)If any of the MBS Agreement, the MSR Recapture Agreement or the Servicing Agreement is terminated by PennyMac Loan Services without cause as provided in each such agreement, the Trust shall have the right to terminate this Agreement without cause upon notice to the Manager, provided that under such circumstances the Operating Partnership shall not be obligated to pay the Termination Fee. 

(f)If this Agreement is terminated pursuant to this Section 11 or pursuant to Section 12, 13 or 14, such termination shall be without any further liability or obligation of any party to the other, except with respect to the payment of a Termination Fee, if applicable, and except as provided in Sections 6, 8 and 15 of this Agreement; provided that notwithstanding the foregoing, the Manager shall be liable to the Trust for any breach of this Agreement, and nothing herein shall limit the Trust from pursuing any and all remedies available to it at law or equity in connection with any such breach. In addition, Sections 9, 17(b) and 18(e) of this Agreement shall survive termination of this Agreement.

Section 12.  Assignments.  (a)  Except as set forth in Section 12(b) of this Agreement, this Agreement shall terminate automatically without payment of the Termination Fee in the event of its assignment, in whole or in part, by the Manager, unless such assignment is consented to in writing by the Trust with the consent of a majority of the Independent Trustees.  Any such permitted assignment shall bind the assignee under this Agreement in the same manner as the Manager is bound, and the Manager shall be liable to the Trust and the Subsidiaries for all errors or omissions of the assignee under any such assignment.  In addition, the assignee shall execute and deliver to the Trust and the Operating Partnership a counterpart of this Agreement naming such assignee as the Manager.  This Agreement shall not be assigned by the Trust or the Operating Partnership without the prior written consent of the Manager, except in the case of assignment by the Trust or the Operating Partnership to another REIT (in the case of the Trust) or other organization which is a successor (by merger, consolidation, purchase of assets, or similar transaction) to the Trust or the Operating Partnership, 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 Trust and the Operating Partnership are bound under this Agreement.

(b)Notwithstanding any provision of this Agreement, the Manager may subcontract and assign any or all of its responsibilities under this Agreement to any of its Affiliates in accordance with the terms of this Agreement applicable to any such subcontract or assignment, and the Trust and the Operating Partnership hereby consent to any such assignment and subcontracting. In addition, provided that the Manager provides prior written notice to the Trust and the Operating Partnership for informational purposes only, nothing contained in this Agreement shall preclude any pledge, hypothecation or other transfer of any amounts payable to the Manager under this Agreement. In addition, the Manager may assign one or more of its duties under this Agreement to any of its Affiliates without the Trust’s or the Operating Partnership’s approval if such assignment does not require their approval under the Investment Advisers Act of 1940, as amended.

Section 13.  Termination by the Trust for Cause.  At the option of the Trust and at any time during the term of this Agreement, this Agreement shall be and become terminated upon at least 30 days’ prior written notice of termination from the Board of Trustees to the Manager,

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without payment of the Termination Fee, if any of the following events shall occur, which shall be determined by a majority of the Independent Trustees:

If any of the events specified above shall occur, the Manager shall give prompt written notice thereof to the Board of Trustees.  The Board of Trustees may exercise its right to terminate the Manager as provided in this Section 13 for a period of 60 days following receipt of such notice.

Section 14.  Termination by the Manager for Cause.

(a)At the option of the Manager and at any time during the term of this Agreement, this Agreement shall be and become terminated upon at least 60 days’ prior written notice of termination from the Manager to the Trust and the Operating Partnership, with payment of the Termination Fee, if the Trust or the Subsidiaries shall have defaulted in the performance of any material term of this Agreement, and such default has continued uncured for a period of 30 days after the Trust’s and the Operating Partnership’s receipt of written notice of such default from the Manager.

(b)At the option of the Manager and at any time during the term of this Agreement, this Agreement shall be and become terminated, without payment of the Termination Fee, if the Trust becomes required to register as an investment company under the Investment Company Act, with such termination deemed to occur immediately before such event.

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Section 15.  Action Upon Termination.  From and after the effective date of termination of this Agreement pursuant to Sections 11, 12, 13 or 14 of this Agreement, the Manager shall not be entitled to compensation for further services hereunder, but shall be paid all compensation accruing to the date of termination and, if the Manager is so entitled in accordance with the terms of this Agreement, the Termination Fee.  Upon any such termination, the Manager shall forthwith:

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

(b)deliver to the Board of Trustees a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board of Trustees with respect to the Trust and any Subsidiary;

(c)deliver to the Board of Trustees all property and documents of the Trust and any Subsidiary then in the custody of the Manager; and

Section 16.  Release of Money or Other Property Upon Written Request.  The Manager agrees that any money or other property of the Trust or any Subsidiary held by the Manager shall be held by the Manager as custodian for the Trust or such Subsidiary, and the Manager’s records shall be appropriately and clearly marked to reflect the ownership of such money or other property by the Trust or such Subsidiary.  Upon the receipt by the Manager of a written request signed by a duly authorized officer of the Trust requesting the Manager to release to the Trust any money or other property then held by the Manager for the account of the Trust or any Subsidiary under this Agreement, the Manager shall release such money or other property to the Trust or any Subsidiary within a reasonable period of time, but in no event later than 45 days following such request.  Upon delivery of such money or other property to the Trust, the Manager shall not be liable to the Trust, any Subsidiary, the Board of Trustees, or the Shareholders or the interest holders of any Subsidiary for any acts or omissions by the Trust or any Subsidiary in connection with the money or other property released in accordance with this Section.  The Trust and the Operating Partnership shall indemnify the Manager and its Affiliates and their respective managers, officers, trustees, directors, employees and members and any Person providing sub-advisory services to the Manager against any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, which arise in connection with the Manager’s release of such money or other property in accordance with the terms of this Section 16.  Indemnification pursuant to this provision shall be in addition to any right of the Manager to indemnification under Section 9 of this Agreement.

Section 17.  Use of Name.

(a)The Manager hereby grants to the Trust and the Subsidiaries during the term of this Agreement a non-exclusive, royalty-free license to use the “PennyMac” brand, trademark, logo and service marks and any derivation thereof related thereto (the “PennyMac Brand”) in the United States.  Notwithstanding the foregoing, it is acknowledged and agreed that the Manager and its other Affiliates retain the right to continue to use the PennyMac Brand

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during the term of this Agreement.  It is further acknowledged and agreed that under no circumstances shall the Manager be prohibited from licensing or transferring the ownership of the PennyMac Brand to third parties. 

(b)In the event of the termination of this Agreement, the Trust shall be required to cease using the PennyMac Brand as promptly as possible, including by changing its name to remove the word “PennyMac” therefrom as promptly as practicable.  The provisions of this Section 17(b) shall survive the expiration or earlier termination of this Agreement.

Section 18.  Miscellaneous.

(a)Notices.  All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered against receipt or upon actual receipt of (1) personal delivery, (2) delivery by reputable overnight courier, (3) delivery by facsimile transmission with telephonic confirmation or (4) delivery by registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below (or to such other address as may be hereafter notified by the respective parties hereto in accordance with this Section 18):

The Trust and the

Attention:  Chief Legal Officer

Fax:   ###-###-####

 

and

Stoner Fox Law Group, LLP

120 Vantis, Suite 300

Aliso Viejo, California 92656

Attention: John E. Stoner

 

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

(c)Integration.  This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof.  The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof.  Without limiting the foregoing, the Trust and the Operating Partnership shall not have any obligations to the Manager, monetary or otherwise, with respect to any agreement or arrangement entered into prior to the date hereof.  

(d)Amendments.  Neither this Agreement, nor any terms hereof, may be amended, supplemented or modified except in an instrument in writing executed by the parties hereto.

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

(f)[Reserved.]

(g)No Waiver; Cumulative Remedies.  No failure to exercise and no delay in exercising, on the part of a party hereto, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other

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right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 

(h)Costs and Expenses.  Each party hereto shall bear its own costs and expenses (including the fees and disbursements of counsel and accountants) incurred in connection with the negotiations and preparation of and the closing under this Agreement, and all matters incident thereto.

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

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

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

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

PENNYMAC MORTGAGE INVESTMENT TRUST

 

 

PENNYMAC OPERATING PARTNERSHIP, L.P.

 

 

 

 

PNMAC CAPITAL MANAGEMENT, LLC

 

 

 

 

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Execution Version

 

Exhibit A

Allocation Policy

Capitalized terms used but not defined herein shall have the meanings ascribed thereto in that certain Second Amended and Restated Management Agreement, dated as of September 12, 2016, as may be amended from time to time (the “Management Agreement”), by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC.

Investment opportunities in pools of mortgage loans that are consistent with the investment objective of the Trust and the Subsidiaries, on the one hand, and the investment objectives of the two private fund vehicles managed by the Manager as of the date of the Management Agreement (the “PennyMac funds”) and other future entities or accounts managed by the Manager, on the other hand, will be allocated among the Trust and the Subsidiaries and the PennyMac funds and such other entities or accounts generally pro rata based upon relative amounts of investment capital (including undrawn capital commitments) available for new investments by the Trust and the Subsidiaries, the PennyMac funds and any other relevant entities or accounts managed by the Manager or by assigning opportunities among the relevant entities such that investments assigned among the Trust and the Subsidiaries, the PennyMac funds and such entities or accounts are fair and equitable over time; provided, that the Manager, in its sole discretion, may allocate investment opportunities in any other manner that it deems to be fair and equitable.

In the case of the assignment of investment opportunities, the Manager will consider a number of factors. These factors include:

Ex. A-1

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In the case of pro rata purchases of pools of loans where the pool is allocated among the Trust and the Subsidiaries, the PennyMac funds and other entities or accounts managed by the Manager, the Manager will, at the time of purchase, seek to allocate the hundreds, or potentially thousands, of individual mortgage loans in the pools among the Trust and the Subsidiaries, the PennyMac funds and such other entities or accounts such that the overall allocation of acquired mortgage loans in the pools will target reasonable symmetry with reference to, among other factors, the following:

This Allocation Policy may be amended, restated, modified, supplemented or waived only by a majority of the Independent Trustees.

 

 

Ex. A-2

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Exhibit B

Investment Policies

Capitalized terms used but not defined herein shall have the meanings ascribed thereto in that certain Second Amended and Restated Management Agreement, dated as of September 12, 2016, as may be amended from time to time, by and among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC.

1.No investment shall be made that would cause the Trust to fail to qualify as a REIT under the Code;

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

3.With the exception of real estate and housing, no single industry shall represent greater than 20% of the investments or aggregate risk exposure in the portfolio of the Trust.

These Investment Policies may be amended, restated, modified, supplemented or waived by the Board of Trustees (which must include a majority of the Independent Trustees) without the approval of, or prior notice to, the Shareholders.

 

Ex.  B-1