Ellington Management Group

All key officers (CEO, COO, CFO, Controller, General Counsel) are seconded from the Manager and are not employees of the Company. Their salaries are fixed by the Manager, not the Board. If the Management Agreement terminates and no replacement manager is retained, a majority shareholder vote is required to retain a replacement manager, creating potential operational disruption.

“For so long as the Management Agreement is in effect, the Manager shall secund personnel to serve as the Chief Executive Officer, Chief Operating Officer and the Chief Financial Officer and in such other capacities as set forth in the Management Agreement, subject to Section 8.5. The Board of Directors shall elect nominated personnel as officers of the Company in accordance with this Article VII.”

The Company's entire management team (CEO, CFO, CIO, controller, secretary and support staff) is provided through Ellington and its affiliates under a Services Agreement, not directly employed by the Company. Leo Huang signs as CEO for both the Company and the Manager, creating concentrated key-person and related-party risk. The Manager is not required to dedicate full-time personnel.

“The Manager, through Ellington and its Affiliates, will provide a management team (including, without limitation, a chief executive officer and president, a chief financial officer, a chief investment officer or co-chief investment officers, a controller and a secretary) along with appropriate support personnel, to deliver the management services to the Company hereunder. The members of such management team shall devote such of their working time and efforts to the management of the Company as the Manager deems reasonably necessary and appropriate”

The operating agreement expressly provides that actions or inactions by Directors that cause the Company to act in compliance with the Management Agreement shall be deemed consistent with fiduciary duties and not constitute a breach. Transactions expressly contemplated under the Management Agreement or disclosed in SEC periodic reports do not constitute a breach of the Agreement or fiduciary duty, limiting member recourse.

“Notwithstanding anything to the contrary in this Agreement, any transaction or other arrangement that involves a conflict of interest and that (i) is expressly contemplated under the Management Agreement without the express requirement thereunder that further approval by the Board of Directors be obtained or (ii) prior to the effectiveness of any such transaction or arrangement, is described in any of the Company's periodic reports filed with the SEC under the Exchange Act, shall not constitute a breach of this Agreement or of any duty otherwise existing at law, in equity or otherwise.”

The Manager is authorized to execute Cross Transactions (trades between the Company and accounts managed by Ellington or its affiliates). The agreement expressly acknowledges the Manager has a potentially conflicting division of loyalties and responsibilities, and requires Independent Director approval for non-market-price cross trades.

“The Company acknowledges that the Manager has a potentially conflicting division of loyalties and responsibilities regarding each party to a Cross Transaction.”

The Company is externally managed by Ellington Financial Management LLC, an affiliate of Ellington Management Group. The manager seconds all senior officers (CEO, COO, CFO, Controller, General Counsel) to the Company; those persons are not employees of the Company. This creates pervasive related-party conflicts since the manager controls day-to-day operations, investment decisions, and officer compensation under a separate Management Agreement. Conflict resolution requires Nominating/Governance Committee approval or member vote.

“For so long as the Management Agreement is in effect and subject at all times to the oversight of the Board of Directors, the Manager will manage the business of the Company and provide its services to the Company in accordance with the terms and conditions of the Management Agreement.”

Nothing in the Agreement prevents the Manager, Ellington, EMG Holdings or their affiliates from managing competing vehicles or investing in similar assets. The Company will not necessarily receive preferential allocation. Manager is only restricted from sponsoring another permanent capital vehicle investing primarily in SFR or small-balance commercial multifamily loans while the Agreement is in effect.

“nothing herein shall prevent the Manager, Ellington, EMG Holdings or any of their Affiliates or any of the officers, directors or employees of any of the foregoing, from engaging in other businesses or from rendering services of any kind to any other Person, including, without limitation, investing in, or rendering advisory services to others investing in, any type of real estate, real estate related investment or non-real estate related investment or other mortgage loans”

Principal transactions between the Company and the Manager, Ellington, their affiliates, or related parties (including employees and their families) require prior Independent Director approval, including pricing methodology. The Manager's interests may conflict with those of the Company in such transactions.

“Principal transactions are transactions between the Company or one of its subsidiaries, on the one hand, and the Manager, Ellington, or any of their investment advisory affiliates (or any of the related parties of the foregoing, which includes employees of Ellington and the Manager and their families), on the other hand (each a 'Principal Transaction'). The Manager is only authorized to execute Principal Transactions with the prior approval of a majority of the Company's Independent Directors and in accordance with applicable law.”

Non-renewal or performance-based termination of the management agreement triggers a cash Termination Fee equal to 3x average annual base and incentive fees over the prior eight quarters plus any shortfall in Final Quarter Adjusted Incentive Compensation. This creates a significant barrier to replacing the Manager even upon unsatisfactory performance.

“'Termination Fee' means ... a termination fee equal to the sum of (i) three times the sum of the average annual Base Management Fee and the average annual Incentive Compensation, in either case paid or payable to the Manager with respect to the previous eight fiscal quarters ending on the last day of the Final Quarter”