Exhibit 10.2
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT, dated as of October , 1997, by and between
LASER MORTGAGE MANAGEMENT, INC., a Maryland corporation (the "Company"), and
LASER ADVISERS INC., a Delaware corporation (the "Manager").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of investing in mortgage
assets, including whole mortgage loans (or participations therein),
mortgage-backed securities, such as mortgage pass-through certificates,
collateralized mortgage obligations and other securities representing interests
in, or obligations backed by, pools of mortgage loans and other fixed income
securities, and has elected to be taxed as a real estate investment trust (a
"REIT") under the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Company desires to retain the Manager to manage the
investments and day-to-day operations of the Company and to perform
administrative services for the Company in the manner and on the terms set forth
herein;
NOW, THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used but not defined herein
shall have the respective meanings assigned to them in the Prospectus, dated
_________ __, 1997 (the "Prospectus"), of the Company included in the Company's
Registration Statement on Form S-11, filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended. In addition, the
following terms shall have the meanings assigned to them:
(a) "Average Stockholders' Equity" means, with respect to any period, the
arithmetic average of stockholders' equity, calculated in accordance with GAAP,
excluding any xxxx-to-market adjustments in the Company's portfolio of
investments, as of the end of the immediately preceding calculation period (or
for any period including the Closing Date, as of a time immediately following
the Closing Date) and as of each month-end within such period.
(b) "Closing Date" means the date of closing of the Company's initial
public offering of common stock.
(c) "GAAP" means generally accepted accounting principles, consistently
applied by the Company.
(d) "Governing Instruments" means the Company's articles of incorporation
and bylaws, as each may be amended from time to time.
(e) "Incentive Fee" shall have the meaning set forth under Section 6(a)(2)
hereof.
(f) "Management Fee" shall have the meaning set forth under Section
6(a)(1) hereof.
(g) "Mortgage REIT" means an entity the securities of which are publicly
traded, organized and operated in compliance with the REIT Provisions of the
Code, that invests primarily in Mortgage Assets and follows investment
strategies substantially similar to those employed by the Company.
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(h) "Net Income" means the taxable income of the Company within the
meaning of the Code, less capital gains and capital appreciation included in
taxable income, but before the Manager's Incentive Fee and before deduction of
dividends paid.
(i) "Non-Competition Payment" shall equal the fair market value of this
Agreement (without giving effect to any termination and assuming it is renewed
in accordance with its terms), determined by a nationally recognized accounting
or investment banking firm experienced in the valuation of investment advisory
agreements. Such valuation shall be conducted by a nationally recognized
accounting or investment banking firm mutually agreed upon by the parties and
the costs of such appraisal shall be borne equally by the parties. If the
parties are unable to agree upon such firm within 30 days following delivery of
the notice of termination, then each party shall, as soon as reasonably
practicable, but in no event more than 45 days following delivery of the notice
of termination, choose a nationally-recognized accounting or investment banking
firm to conduct an appraisal and such firms shall mutually agree upon a third
nationally-recognized accounting or investment banking firm. In such event, (i)
the fair market value amount shall be deemed to be the average of the appraisals
as conducted by each of the three firms; provided, however, that if the
appraisal by any firm is more than 15% greater or lesser than the average, such
firm's appraisal shall be disregarded and the fair market value amount shall be
deemed to be the average of the remaining appraisal(s) and (ii) each party shall
pay the costs of its chosen accounting or investment banking firm. Any
appraisal conducted hereunder shall be performed no later than 45 days following
selection of the accounting or investment banking firm. The Non-Competition
Payment payable by the
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Company shall be paid within 30 days following receipt of the final appraisal
obtained hereunder.
(j) "REIT Provisions of the Code" shall mean Sections 856 through 860 of
the Code, or any successor provisions thereto, and the regulations thereunder.
(k) "Return on Average Stockholders' Equity" means the result obtained by
dividing the Company's Net Income for a period by its Average Stockholders'
Equity for such period.
(l) "Ten-Year U.S. Treasury Rate" shall mean the arithmetic average of the
weekly yield to maturity for actively traded current coupon U.S. Treasury fixed
interest rate securities (adjusted to constant maturities of ten years) as
published weekly by the Federal Reserve Board in "Federal Reserve Statistical
Release H.15(519)--Selected Interest Rates" or, if such rate is not published by
the Federal Reserve Board, as published by any Federal Reserve Bank or agency or
department of the federal government selected by the Company.
(m) "Termination Event" shall mean the occurrence of any of the following
events:
(1)the Manager violating any material provision of this Agreement, and
if after notice of such violation and such violation is curable, it shall
not have cured such violation within 30 days; or
(2)the Manager ceasing to be registered as an investment adviser under
the Advisers Act, if such registration is required as a matter of law; or
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(3)(i) the Manager generally not paying its obligations as such
obligations become due, or admitting in writing its inability to pay its
obligations generally, or making a general assignment for the benefit of
creditors; or (ii) any proceeding being instituted by or against the
Manager seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its obligations under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors,
or seeking the entry of any order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it), such proceedings
remaining undismissed or unstayed for a period of sixty days; or (iii) any
of the actions sought in any proceeding described in (ii) above (including
an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) occurring or (iv) the Manager taking any action to authorize any
of the actions set forth above in this subsection; or
(4)an assignment (as defined in the Advisers Act) of this Agreement
without the approval of the Company; or
(5)the commission by the Manager of fraud, dishonesty, gross
negligence or willful misconduct in connection with this Agreement.
SECTION 2. INVESTMENT MANAGEMENT DUTIES OF THE MANAGER.
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(a) Under the ultimate supervision of the Company's Board of Directors
(the "Directors"), the Manager is authorized to invest the assets of the Company
according to the strategies and restrictions set forth from time to time by the
Directors, initially including those set forth in the Prospectus. In
furtherance of such general grant of authority, the Manager shall have full
discretion and authority, without obtaining the Company's prior approval, to
manage the investment and reinvestment of the assets of the Company in such
manner as the Manager considers appropriate, consistent with the Prospectus and
written instructions of the Directors.
(b) The Manager shall select brokers, dealers, banks and intermediaries to
effect transactions for the Company, and may agree to such commissions, fees and
other charges on behalf of the Company as the Manager shall deem reasonable
under the circumstances taking into account all such factors it deems relevant.
All brokerage commissions and related transaction costs for transactions on
behalf of the Company will be borne by the Company. The Manager agrees to
select brokers and dealers on the basis of obtaining the best overall terms
available, which the Manager shall evaluate based on a variety of factors,
including the ability to achieve prompt and reliable executions at favorable
prices; the operational efficiency with which transactions are effected; the
financial strength, integrity and stability of the broker, the quality,
comprehensiveness and frequency of available research and related services
considered to be of value; and the competitiveness of commissions and similar
charges compared to other brokers satisfying the Manager's other selection
criteria. Research and related services furnished by brokers to the Manager may
be used for the benefit of clients other than the Company and may include:
written information and analyses concerning specific securities, companies or
sectors;
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market, financial and economic studies and forecasts, statistics, tax matters
and pricing services; discussions with legal and research personnel; and news,
technical and telecommunications services and equipment utilized in the
investment management process. Subject to seeking the best execution, the
Manager also may consider referrals of potential investors in the Company and
research provided about the Company as factors in the selection of brokers. The
Manager may cause the Company to pay a broker a commission in excess of that
which another broker might have charged for effecting the same transaction in
recognition of the value of the brokerage, research and related services
provided by the broker.
SECTION 3. GENERAL DUTIES OF THE MANAGER. Subject to the supervision of
the Directors, the Manager shall provide services to the Company and will be
responsible for the day-to-day operations of the Company and will perform (or
cause to be performed) such services and activities relating to the assets and
operations of the Company as may be appropriate, including, among other things:
(a) serving as the Company's consultant with respect to formulation
of investment criteria by the Directors;
(b) advising the Company in connection with the purchase and
commitment to purchase Mortgage Assets, the sale and commitment to sell Mortgage
Assets, and the maintenance and administration of its portfolio of Mortgage
Assets;
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(c) arranging for the securitization of Mortgage Loans;
(d) furnishing reports and statistical and economic research to the
Company regarding the Company's activities and the services performed for the
Company by the Manager;
(e) monitoring and providing to the Directors on an ongoing basis
price information and other data obtained from certain nationally recognized
dealers that maintain markets in assets identified by the Directors, and
providing data and advice to the Directors in connection with the identification
of such dealers;
(f) providing executive and administrative personnel, office space
and office services required in rendering services to the Company;
(g) administering the day-to-day operations of the Company and
performing and supervising the performance of such other administrative
functions necessary to the management of the Company as may be agreed upon by
the Manager and the Directors, including collection of the Company's revenues
and payment of the Company's debts and obligations and maintenance of
appropriate computer systems to perform such administrative functions;
(h) communicating on behalf of the Company with the holders of any
equity or debt securities of the Company as required to satisfy the reporting
and other requirements of any governmental bodies or agencies or trading markets
and to maintain effective relations with such holders;
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(i) to the extent not otherwise subject to an agreement executed by
the Company, designating a servicer for Mortgage Loans purchased by the Company
and arranging for the monitoring and administering of such servicer, including
negotiating servicing agreements, collecting information and submitting reports
pertaining to the Mortgage Loans and to monies remitted to the Manager or the
Company;
(j) counseling the Directors in connection with policy decisions;
(k) engaging in hedging activities on behalf of the Company,
consistent with the Company's status as a REIT;
(l) arranging financing of the type described in the Prospectus under
the caption "BUSINESS--Operating Policies and Strategies--Capital and Leverage
Policies;"
(m) supervising compliance with the REIT Provisions of the Code and
Investment Company Act requirements;
(n) upon request by, and in accordance with the directions of, the
Directors, investing or reinvesting any monies of the Company;
(o) qualifying and causing the Company to qualify to do business in
all applicable jurisdictions; and
(p) causing the Company to retain qualified accountants and tax
experts to assist in developing appropriate accounting procedures and testing
systems and to conduct quarterly compliance reviews.
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SECTION 4. ADDITIONAL ACTIVITIES OF MANAGER. Nothing herein shall prevent
the Manager or any of its Affiliates from engaging in other businesses or from
rendering services of any kind to any other person or entity, except that the
Manager agrees, during the term of this Agreement, not to serve as an investment
adviser to any Mortgage REIT, other than the Company, without the prior written
approval of the Independent Directors.
SECTION 5. INVESTMENTS FOR THE ACCOUNTS OF OTHERS AND ALLOCATION OF
OPPORTUNITIES. The Company understands that the Manager, from time to time,
will purchase and sell Mortgage Assets and other securities of the type in which
the Company may invest for the accounts of others for whom it may provide
investment advisory or other services (collectively, "Managed Accounts"). The
Company understands that when the Manager determines that it would be
appropriate for the Company and one or more Managed Accounts to participate in
an investment opportunity, the Manager will seek to execute orders for the
Company and for such Managed Accounts on an equitable basis. In such
situations, the Manager may place orders for the Company and each Managed
Account simultaneously, and if all such orders are not filled at the same price,
the Manager may cause the Company and each Managed Account to pay or receive the
average of the prices at which the orders were filled for the Company and all
Managed Accounts. If all such orders cannot be fully executed under prevailing
market conditions, the Manager may allocate the securities traded among the
Company and the Managed Accounts in a manner which it considers equitable,
taking into account the size of the order placed for the Company and each such
Managed Account, as well as any other factors which it deems relevant.
SECTION 6. COMPENSATION AND EXPENSES.
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(a) For services rendered under this Agreement, the Company agrees to pay
to the Manager the following:
(1)an annual base management fee (the "Management Fee") equal to 1.0%
of the first $500 million of Average Stockholders' Equity, plus 0.8% of the
next $500 million of Average Stockholders' Equity, plus 0.6% of Average
Stockholders' Equity exceeding $1 billion;
(2)an incentive fee (the "Incentive Fee") for each fiscal quarter in
an amount equal to 20% of the Company's Net Income for such fiscal quarter,
in excess of the amount that would produce an annualized Return on Average
Stockholders' Equity for such fiscal quarter equal to the Ten Year U.S.
Treasury Rate for such quarter plus 1%; and
(3)in consideration of the Manager's agreement in Section 4, the
Non-Competition Payment, if the Company terminates, or the Directors fail
to approve a continuation of, this Agreement or the Company engages
another person to manage a portion of its assets or manages its assets
internally with personnel other than those previously employed by the
Manager, and, at the time of such action, no Termination Event has occurred
and is continuing.
(b) The Company agrees to pay directly or reimburse the Manager for (i)
all expenses incurred in connection with transactions effected or positions held
on behalf of the Company pursuant to the Manager's exercise of its duties
hereunder (including, without limitation, custodial fees, clearing fees,
brokerage commissions and related transaction costs, interest and
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commitment fees on loans and debit balances and withholding or transfer taxes);
and (ii) out-of-pocket expenses paid or payable to third parties on behalf of
the Company.
(c) The Management Fee and Incentive Fee shall be paid in arrears. The
Management Fee and expenses will be calculated by the Manager as promptly as
practicable after month-end. The Manager's incentive fee will be calculated by
the Manager within 45 days after the end of each quarter. Such calculations
shall be promptly delivered to the Company. The Company agrees to pay all such
fees and expenses within 15 days of delivery of such calculation. In the
absence of manifest error, the Manager's calculations of such amounts shall
control.
(d) No Management or Incentive Fee shall accrue or be payable in respect
of any period before the Closing Date. Management Fees for any partial period
shall be pro-rated according to the proportion which such partial period bears
to the full period.
SECTION 7. LIMITS OF MANAGER RESPONSIBILITY.
(a) The Company agrees that the Manager shall not be liable to the
Company, its Affiliates or their directors, officers or stockholders for any
losses, damages, expenses or claims occasioned by any act or omission of the
Manager, its directors, officers, stockholders, employees or agents in
connection with the performance of its services hereunder, other than as a
result of its own willful misconduct, gross negligence or reckless disregard of
its duties hereunder, or as otherwise required by applicable law.
(b) The Company agrees to indemnify the Manager, its stockholders,
directors, officers, employees or agents against and hold them harmless from any
and all
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liabilities, losses, damages, expenses or claims arising out of any claim
asserted or threatened to be asserted by any third party in connection with the
Manager's serving or having served as such pursuant to this Agreement; provided,
however, that the Manager shall not be entitled to indemnification with respect
to any liabilities or losses or damages, expenses or claims which were found by
a court of competent jurisdiction (in a final judgment from which no appeal may
be taken) to have been caused by its own gross negligence, willful misconduct or
reckless disregard of its duties hereunder. The Company shall advance to the
Manager the reasonable costs and expenses of investigating and/or defending any
such claim, subject to receiving a written undertaking from the Manager to repay
any such amounts advanced to it in the event and to the extent of such
determination that the Manager was not entitled to indemnification hereunder.
In the event that the Manager is or becomes a party to any action or proceeding
in respect of which indemnification may be sought hereunder, the Manager shall
promptly notify the Company thereof. Following such notice, the Company shall
be entitled to participate therein and, to the extent that it may wish, to
assume the defense thereof with counsel reasonably satisfactory to the Manager.
After notice from the Company to the Manager of an election so to assume the
defense thereof, the Company will not be liable to the Manager hereunder for any
legal or other expenses subsequently incurred by the Manager in connection with
the defense thereof, other than reasonable costs of investigation, unless
counsel for the Manager reasonably shall determine that there is a conflict of
interest which requires separate representation of the parties. The Company
shall not be liable hereunder for any settlement of any action or claim effected
without its written consent, which consent shall not be unreasonably withheld,
nor shall
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the Company enter into any settlement which shall impose any obligation on the
Manager without its written consent.
(c) At any time, the Manager may consult with counsel, accountants and tax
advisers for the Company with respect to any matter arising in connection with
the Manager's duties and obligations under this Agreement, and the Manager shall
not be liable for any action taken or omitted by it in good faith in accordance
with the advice of such persons.
SECTION 8. TERM: TERMINATION. This Agreement shall commence on the date
hereof and shall continue for an initial term expiring on December 31, 2002,
and, thereafter, shall continue automatically for successive three-year periods,
provided such continuance is specifically approved by the Directors, including a
majority of the Independent Directors. This Agreement is terminable, by either
the Company, pursuant to a majority vote of the Independent Directors or a vote
of the holders of a majority of the outstanding shares of common stock, or the
Manager, without cause at any time upon 60 days' written notice to the other
party. This Agreement will also terminate automatically in the event of its
assignment (as defined in the Advisers Act), unless the assignment is consented
to by the non-assigning party.
SECTION 9. ACTION UPON TERMINATION. From and after the date of
termination of this Agreement, the Manager shall not be entitled to compensation
for further services hereunder, except pursuant to any separate written
management termination agreement that may be negotiated by the parties, but
shall be paid any compensation accruing through the date of termination,
including the Non-Competition Payment. Upon such termination, the Manager shall
forthwith:
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(a) after deducting any accrued compensation and reimbursement for its
expenses to which it is then entitled, pay over to the Company or any subsidiary
of the Company any money collected and held for the account of the Company or
any subsidiary of the Company pursuant to this Agreement;
(b) deliver to the Directors a full accounting, including a statement
showing all payments collected by it and a statement of all money held by it,
covering the period following the date of the last accounting furnished to the
Directors with respect to the Company or any subsidiary of the Company;
(c) pay to the Company all sums set forth on the accounting referenced in
(b) above; and
(d) deliver to the Directors all property and documents of the Company or
any subsidiary of the Company then in the custody of the Manager.
SECTION 10. NOTICES. Unless expressly provided otherwise herein, any
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given,
made and received when delivered against receipt or upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested. The
parties may deliver to each other notice by electronically transmitted facsimile
copies provided that such notice is followed within twenty-four hours by any
type of notice otherwise provided for in this Section. Any notice shall be duly
addressed to the parties as follows:
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(a) If to the Company:
LASER Mortgage Management, Inc.
00 Xxxx X. Xxxxxxx Xxxxxxx
Xxxxx Xxxxx, Xxx Xxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxxxx
with a copy given in the manner prescribed above, to:
Xxxxxx X. Xxxxxxx, Esq.
Stroock & Stroock & Xxxxx LLP
000 Xxxxxx Xxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
(b) If to the Manager
LASER Advisers Inc.
00 Xxxx X. Xxxxxxx Xxxxxxx
Xxxxx Xxxxx, Xxx Xxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxxxx
with a copy given in the manner prescribed above, to:
Xxxxxx X. Xxxxxxx, Esq.
Stroock & Stroock & Xxxxx LLP
000 Xxxxxx Xxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Either party may alter the address to which communications or copies
are to be sent by giving notice of such change of address in conformity with the
provisions of this Section for the giving of notice.
SECTION 11. MISCELLANEOUS.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns as provided
herein.
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(b) This Agreement contains the entire agreement and understanding
between 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 or usage of the trade inconsistent with any
of the terms hereof. This Agreement may not be modified or amended other than
by an agreement in writing approved by the Company (including a majority of the
Independent Directors) and the Manager.
(c) This Agreement and all questions relating to its validity,
interpretation, performance and enforcement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
New York, without giving effect to principles of conflicts of law.
(d) Neither the failure nor any delay on the part of a party to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of the
same or of any other right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.
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(e) The titles of Sections contained in this Agreement are for
convenience only and they neither form a part of this Agreement nor are they to
be used in the construction or interpretation hereof.
(f) This Agreement may be executed in counterparts, each of which
when so executed and delivered shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
(g) The provisions of this Agreement are independent of and separable
from each other, and no provision shall be affected or rendered invalid or
unenforceable by virtue of the fact that for any reason any other or others of
them may be invalid or unenforceable in whole or in part.
(h) Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
(i) The Company and the Manager are not partners or joint venturers
with each other and nothing herein shall be construed to make them such partners
or joint venturers or impose any liability as such on either of them.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
LASER MORTGAGE MANAGEMENT, INC.
By:
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Title:
LASER ADVISERS INC.
By:
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Title:
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