COLLATERAL MANAGEMENT AGREEMENT

Exhibit 10.5

 

Dated as of June 28, 2005

 

TABERNA PREFERRED FUNDING II, LTD.,

as Issuer

 

TABERNA CAPITAL MANAGEMENT, LLC,

as Collateral Manager

 

 

COLLATERAL MANAGEMENT AGREEMENT

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

(continued)

 

 

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COLLATERAL MANAGEMENT AGREEMENT

 

This Collateral Management Agreement, dated as of June 28, 2005, is entered into by and between TABERNA PREFERRED FUNDING II, LTD., an exempted company incorporated under the laws of the Cayman Islands, as Issuer (the “ Issuer ”), and TABERNA CAPITAL MANAGEMENT, LLC (“ Taberna Capital Management ”), a limited liability company organized under the laws of the State of Delaware, as Collateral Manager (together with successors and assigns permitted hereunder, the “ Collateral Manager ”).

 

WITNESSETH:

 

WHEREAS, the Issuer and TABERNA Preferred Funding II, Inc., a corporation incorporated under the laws of the State of Delaware (the “ Co-Issuer ” and, together with the Issuer, the “ Co-Issuers ”), intend to issue U.S.$400,000,000 Class A-1A First Priority Delayed Draw Senior Secured Floating Rate Notes due 2035 (the “ Class A-1A Notes ”); U.S.$106,500,000 Class A-1B First Priority Senior Secured Floating Rate Notes due 2035 (the “ Class A-1B Notes ”); U.S.$10,000,000 Class A-1C First Priority Senior Secured Fixed/Floating Rate Notes due 2035 (the “ Class A-1C Notes ” and together with the Class A-1A Notes and the Class A-1B Notes, the “ Class A-1 Notes ”); U.S.$86,500,000 Class A-2 Second Priority Senior Secured Floating Rate Notes due 2035 (the “ Class A-2 Notes ” and, together with the Class A-1 Notes, the “ Class A Notes ”); U.S.$120,500,000 Class B Third Priority Secured Floating Rate Notes due 2035 (the “ Class B Notes ”); U.S.$73,750,000 Class C-1 Deferrable Fourth Priority Secured Floating Rate Notes due 2035 (the “ Class C-1 Notes ”); U.S.$26,000,000 Class C-2 Deferrable Fourth Priority Secured Fixed/Floating Rate Notes due 2035 (the “ Class C-2 Notes ”); U.S.$15,000,000 Class C-3 Deferrable Fourth Priority Secured Fixed/Floating Rate Notes due 2035 (the “ Class C-3 Notes ” and together with the Class C-1 Notes and the Class C-2 Notes, the “ Class C Notes ”); U.S.$31,250,000 Class D Deferrable Fifth Priority Secured Floating Rate Notes due 2035 (the “ Class D Notes ”); U.S.$31,250,000 Class E-1 Deferrable Mezzanine Secured Floating Rate Notes due 2035 (the “ Class E-1 Notes ”); U.S.$10,500,000 Class E-2 Deferrable Mezzanine Secured Fixed/Floating Rate Notes due 2035 (the “ Class E-2 Notes ” and together with the Class E-1 Notes, the “ Class E Notes ”); U.S.$42,500,000 Class F Deferrable Subordinate Secured Floating Rate Notes due 2035 (the “ Class F Notes ”); and, together with the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes the “ Notes ”), in each case to be issued under an Indenture, dated as of June 28, 2005 (the “ Indenture ”), by and among the Issuer, the Co-Issuer and JPMorgan Chase Bank, National Association, as trustee (together with any successor trustee permitted under the Indenture, the “ Trustee ”);

 

WHEREAS, the Issuer intends to issue 89,000,000 Preferred Shares, par value $0.01 per share, in the capital of the Issuer, with an aggregate notional amount of U.S.$1,000 (the “ Preferred Shares ”), which Preferred Shares shall be authorized and issued pursuant to the Issuer Charter;

 

WHEREAS, the Issuer intends to issue U.S. $3,000,000 Series I 2.00% Combination Notes due November 5, 2035 (the “ Series I Combination Notes ”); U.S. $10,000,000 Series II 2.00% Combination Notes due November 5, 2035 (the “ Series II Combination Notes ”); U.S. $10,000,000 Series III 3.15% Combination Notes due November 5,

2035 (the “ Series III 3.15% Combination Notes ”); U.S.$10,000,000 Class P-1 Combination Securities Due November 5, 2035 (the “ Class P-1 Combination Securities ”); U.S.$2,000,000 Class P-2 Combination Securities Due November 5, 2035 (the “ Class P-2 Combination Securities ”); US$15,520,000 Class P-3 Combination Securities Due November 5, 2035 (the “ Class P-3 Combination Securities ”) and, together with the Series I Combination Notes, the Series II Combination Notes, the Series III 3.15% Combination Notes, the Class P-1 Combination Securities and the P-2 Combination Securities, the “ Component Securities ” and, together with the Notes and the Preferred Shares, the “ Securities ”).

 

WHEREAS, the Issuer intends to pledge the Collateral Debt Securities and the Equity Securities, the Eligible Investments, the Issuer’s rights under any Hedge Agreements, the Collateral Administration Agreement and this Agreement, certain contract rights and amounts on deposit in certain accounts, certain other assets, and the proceeds thereof (all as fully described and set forth in the Granting Clauses to the Indenture and defined therein as the “ Collateral ”) to the Trustee as security for the Notes;

 

WHEREAS, the Issuer desires to engage the Collateral Manager to perform certain duties with respect to the Collateral securing the Secured Obligations in the manner and on the terms set forth herein; and

 

WHEREAS, the Collateral Manager has the capacity to provide the services required hereby and is prepared to perform such services upon the terms and conditions 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 herein and not defined herein shall have the meanings set forth in the Indenture.

 

“ Advisers Act ” has the meaning set forth in Section 16(b)(ii) .

 

“ Agreement ” means this Collateral Management Agreement, as amended, supplemented or otherwise modified from time to time.

 

“ Base Collateral Management Fee ” has the meaning set forth in Section 8 .

 

“ Class A Notes ” has the meaning set forth in the first recital.

 

“ Class A-1 Notes ” has the meaning set forth in the first recital.

 

“ Class A-1A Notes ” has the meaning set forth in the first recital.

 

“ Class A-1B Notes ” has the meaning set forth in the first recital.

 

“ Class A-1C Notes ” has the meaning set forth in the first recital.

 

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“ Class A-2 Notes ” has the meaning set forth in the first recital.

 

“ Class B Notes ” has the meaning set forth in the first recital.

 

“ Class C Notes ” has the meaning set forth in the first recital.

 

“Class C-1 Notes ” has the meaning set forth in the first recital.

 

“ Class C-2 Notes ” has the meaning set forth in the first recital.

 

“ Class C-3 Notes ” has the meaning set forth in the first recital.

 

“ Class D Notes ” has the meaning set forth in the first recital.

 

“ Class E Notes ” has the meaning set forth in the first recital.

 

“ Class E-1 Notes ” has the meaning set forth in the first recital.

 

“ Class E-2 Notes ” has the meaning set forth in the first recital.

 

“ Class F Notes ” has the meaning set forth in the first recital.

 

“ Class P-1 Combination Securities ” has the meaning set forth in the third recital.

 

“ Class P-2 Combination Securities ” has the meaning set forth in the third recital.

 

“ Class P-3 Combination Securities ” has the meaning set forth in the third recital.

 

“ Co-Issuer ” has the meaning set forth in the first recital.

 

“ Collateral ” has the meaning set forth in the third recital.

 

“ Collateral Management Fee ” has the meaning set forth in Section 8 .

 

“ Collateral Manager Breaches ” has the meaning set forth in Section 10 .

 

“ Collateral Manager Indemnified Party ” has the meaning set forth in Section 10 .

 

“ Collateral Manager Information ” has the meaning set forth in Section 16(b)(vi) .

 

“ Component Securities ” has the meaning set forth in the third recital.

 

“ Expenses ” has the meaning set forth in Section 10 .

 

“ Indenture ” has the meaning set forth in the first recital.

 

“ Issuer Indemnified Party ” has the meaning set forth in Section 10 .

 

“ Losses ” has the meaning set forth in Section 10 .

 

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“ Notes ” has the meaning set forth in the first recital.

 

“ Preferred Shares ” has the meaning set forth in the second recital.

 

“ Rule 144A Information ” has the meaning set forth in Section 34 .

 

“ Securities ” has the meaning set forth in the second recital.

 

“ Series I Combination Notes ” has the meaning set forth in the third recital.

 

“ Series II Combination Notes ” has the meaning set forth in the third recital.

 

“ Series III 3.15% Combination Notes ” has the meaning set forth in the third recital.

 

“ Special-Majority-in-Interest of Preferred Shareholders ” means, at any time, Preferred Shareholders whose aggregate Voting Percentages at such time exceed 66-2/3% of all Preferred Shareholder’s Voting Percentage at such time.

 

“ Subordinate Collateral Management Fee ” has the meaning set forth in Section 8 .

 

“ Trustee ” has the meaning set forth in the first recital.

 

Section 2. General Duties of the Collateral Manager.

 

(a) The Collateral Manager shall provide services to the Issuer as follows:

 

(i) Subject to and in accordance with the terms and conditions of this Agreement and the Indenture, the Collateral Manager agrees to supervise and direct the administration of the Collateral as permitted herein and in the Indenture, and shall, on behalf of the Issuer, perform (or direct the performance of), the duties and functions assigned to the Collateral Manager in the Indenture or for which it is granted explicit authority to act on behalf of the Issuer under the Indenture, including, without limitation, the furnishing of Issuer Orders, Issuer Requests and officer’s certificates, and such certifications as are required of the Collateral Manager under the Indenture with respect to permitted sales and acquisitions of the Collateral Debt Securities and other matters as set forth herein and in the Indenture, and the Collateral Manager shall have the power to execute and deliver all necessary and appropriate documents and instruments on behalf of the Issuer with respect thereto. The Collateral Manager in performing its duties and functions under this Agreement and under the Indenture shall, subject to the terms and conditions of the Indenture and the other provisions hereof (including without limitation, Article 12 of the Indenture and the restrictions on the Collateral Manager’s actions contained herein and in the Indenture), use a degree of skill and attention no less than that which the Collateral Manager exercises with respect to comparable assets that it administers for itself and for others in accordance with its existing practices and procedures relating to assets of the nature and character of the Collateral, except as expressly provided otherwise in this Agreement or the Indenture. To the extent not inconsistent with the foregoing, the Collateral Manager shall follow its customary standards, policies and procedures in the performance of its duties hereunder. The Collateral Manager shall have no obligation to perform any duties other than as

 

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specified herein (including as incorporated herein by reference) and in the Indenture. The Collateral Manager shall be bound to follow any amendment or supplement to the Indenture affecting the duties and functions to be performed by it hereunder of which it has (a) received written notice at least ten (10) Business Days prior to the execution and delivery of such amendment or supplement and (b) received a copy of such executed amendment or supplement from the Issuer or the Trustee; !provided , that with respect to any amendment or supplement to the Indenture which could reasonably be expected to materially adversely affect the Collateral Manager, the Collateral Manager shall not be bound thereby unless it gives written consent to the Trustee and the Issuer to such amendment or supplement at least one (1) Business Day prior to such execution and delivery.

 

(ii) The Collateral Manager shall (a) determine, upon the request of the Trustee, when payments received in respect of the Collateral shall be applied as Principal Proceeds and when such payments shall be applied as Interest Proceeds, such determination to be made in accordance with the Indenture, (b) advise the Issuer with respect to the use of Sale Proceeds, in the limited circumstances permitted in the Indenture, to acquire Additional Collateral Debt Securities and advise the Issuer with respect to the acquisition of Eligible Investments in accordance with the Indenture and the investment criteria set forth therein and (c) facilitate the acquisition and settlement of Collateral Debt Securities by the Issuer.

 

(iii) The Collateral Manager shall monitor the Collateral on behalf of the Issuer and, on an ongoing basis, in accordance with the Indenture, provide to the Issuer and the Trustee all schedules and other information and data in its possession in connection with the reports called for under the Indenture relating to the Collateral which the Issuer or the Trustee on behalf of the Noteholders is required to prepare and shall prepare and deliver the reports called for under the Indenture, in such forms and containing such information as is required thereby, in sufficient time for any such schedules and other information and data to be reviewed and for such reports to be generated and distributed by the Issuer or the Trustee, as the case may be, to the parties entitled thereto under the Indenture. The Collateral Manager shall, on behalf of the Issuer, monitor in accordance with customary industry practice and the Indenture whether a Collateral Debt Security has become a Defaulted Security, a Credit Risk Security or an Equity Security and, promptly following any determination that a Collateral Debt Security has become a Defaulted Security, a Credit Risk Security or an Equity Security, shall notify the Issuer and the Trustee of the identity and Principal Balance of such Defaulted Security, Credit Risk Security or Equity Security. The obligation of the Collateral Manager to furnish the Issuer with such information is subject to the Collateral Manager’s timely receipt of necessary reports and appropriate information from the Person responsible for the delivery of or preparation of such reports and such information (including, without limitation, the Rating Agencies and the Trustee). To the extent that such reports and information are not timely received, the Collateral Manager shall promptly request such reports and information and shall use commercially reasonable efforts to obtain such information from such Persons.

 

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(iv) The Collateral Manager may, on behalf of the Issuer, take or direct the Trustee to take the following actions with respect to a Collateral Debt Security or an Eligible Investment:

 

(A) cause the Trustee to (a) sell or otherwise dispose of such Collateral Debt Security subject to and in accordance with Article 12 of the Indenture and (b) select, acquire, sell or otherwise dispose of such Eligible Investment, as applicable, in each case under the limited circumstances permitted or required under the Indenture; and

 

(B) in connection with the foregoing, cause the Trustee to (a) exercise any rights or remedies with respect to such Collateral Debt Security (including waiving any default or voting to accelerate the maturity of any Defaulted Security) or (b) acquire or exercise any rights or remedies with respect to such Eligible Investment as provided in the Indenture.

 

(v) Any sale (including without limitation by Auction) and purchase of a Collateral Debt Security or Eligible Investment in accordance with the Indenture shall be conducted on an arm’s-length basis in accordance with the Indenture.

 

(vi) The Collateral Manager shall consult, upon reasonable notice at reasonable times, with the Rating Agencies, the Placement Agent and the Trustee with respect to the Collateral Debt Securities and Eligible Investments in connection with its duties under this Section 2 .

 

(vii) The Collateral Manager on behalf of the Issuer shall reduce the notional amounts in accordance with the provisions of any Hedge Agreement or facilitate the Issuer’s entering into additional or substitute interest rate contracts in accordance with the terms of the Indenture.

 

(b) In providing services hereunder, the Collateral Manager may, without the prior consent of any Person, (i) employ third parties, including its Affiliates, to render advice and assistance and (ii) delegate to any employee, agent or third party, including its Affiliates, any or all of its duties hereunder; provided , that the Collateral Manager shall not be relieved of any of its duties hereunder regardless of the performance of any services by any such employee, agent or third party.

 

(c) In performing its duties hereunder and when exercising its discretion and judgment in connection with any transactions involving the Collateral Debt Securities or Eligible Investments, the Collateral Manager shall carry out any written directions of the Issuer for the purpose of the Issuer’s compliance with the Issuer Charter and the Indenture; provided , that such directions are not inconsistent with any provision of this Agreement or the Indenture by which the Collateral Manager is bound.

 

(d) The Collateral Manager will perform its duties under this Agreement in the State of Delaware and will not perform any duties hereunder in any other State unless the Collateral Manager first shall have received an opinion of counsel concluding that the performance of such duties in such other State will not cause the Issuer or the Co-Issuer to become subject to any income, franchise or similar tax imposed by such State.

 

Section 3. Brokerage.

 

The Collateral Manager, in its sole discretion, shall seek to obtain the best commercially reasonable prices and execution for all sales facilitated by the Collateral Manager

 

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of the Collateral Debt Securities, considering all circumstances (including, without limitation, the nature of the Collateral Debt Securities and the market for the Collateral Debt Securities); provided , that the terms of the sale of the Collateral Debt Securities to the Issuer on the Closing Date are being made on commercially reasonable terms negotiated prior to the date of this Agreement. Subject to such objective of obtaining the best commercially reasonable prices and execution, the Collateral Manager may, in its selection of brokers and dealers, take into consideration research and other brokerage services furnished to the Collateral Manager or its Affiliates by brokers and dealers, including brokers and dealers affiliated with the Collateral Manager, in compliance with Section 28(e) of the Securities Exchange Act of 1934. Such research and other brokerage services may be used by the Collateral Manager in connection with its other advisory activities or investment operations. Unless expressly prohibited by this Agreement, the Collateral Manager may execute transactions facilitating the sale of Collateral Debt Securities by the Issuer, or facilitating the acquisition of Eligible Investments and Additional Collateral Debt Securities by the Issuer as part of concurrent authorizations to sell or purchase the same security for its own account or other accounts served by the Collateral Manager if such aggregation shall not be disadvantageous to the Issuer in any material respect in the reasonable judgment of the Collateral Manager. When these concurrent transactions occur, the objective of the Collateral Manager shall be to allocate the executions among the accounts in a manner which the Collateral Manager reasonably believes to be equitable and which is consistent with the Collateral Manager’s obligations hereunder, its standard practices and applicable law. Unless expressly prohibited by this Agreement or the Indenture, the Collateral Manager may, on behalf of the Issuer, direct the Trustee to sell or acquire Collateral Debt Securities or Eligible Investments, as applicable, to or from the Collateral Manager and its Affiliates, to or from entities for which the Collateral Manager acts as investment advisor or in a similar capacity or to or from any other Person, in each case subject to the terms of this Agreement and the Indenture. All sales and requisitions of Collateral Debt Securities or Eligible Investments, as applicable, by the Collateral Manager on behalf of the Issuer shall be in accordance with its reasonable and customary business practices and in compliance with applicable law.

 

Section 4. Additional Activities of the Collateral Manager.

 

Nothing herein shall prevent the Collateral Manager or any of its Affiliates from engaging in other businesses, or from rendering services of any kind to the Issuer, the Trustee, the Placement Agent, the Noteholders, the Preferred Shareholders or any of their respective Affiliates or any other Person or entity. Without limiting the generality of the foregoing, the Collateral Manager and the directors, officers, employees and agents of the Collateral Manager and its Affiliates may, among other things, subject to applicable law:

 

(a) serve as directors (whether supervisory or managing), officers, employees, agents, nominees or signatories for the Issuer, any of the Issuer’s Affiliates or any issuer of any securities included in the Collateral, to the extent permitted by its constituting documents, as from time to time amended, supplemented or otherwise modified or by any resolutions duly adopted by the Issuer or any of the Issuer’s Affiliates or any issuer of any securities included in the Collateral, pursuant to their respective constituting documents;

 

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(b) receive fees for services rendered to the issuer of any securities included in the Collateral or any other party;

 

(c) be retained to provide services unrelated to this Agreement to the Issuer or any of the Issuer’s Affiliates and be paid therefor;

 

(d) be a secured or unsecured creditor of, or hold an equity interest in, the Issuer or any of the Issuer’s Affiliates or any issuer of any security included in the Collateral or any Affiliate of such issuer;

 

(e) make a market in any security included in the Collateral or in the Securities; and

 

(f) subject to Section 9 hereof, serve as a member of any “creditors’ board” or informal workout group with respect to any security included in the Collateral which has become, or, in the Collateral Manager’s reasonable opinion, may become, a Defaulted Security.

 

It is understood that the Collateral Manager and any of its Affiliates may engage in any other business and furnish services of any kind to others, including Persons which may have investment policies similar to those followed by the Collateral Manager with respect to the Collateral and which may own securities of the same class, or which are the same type, as the Collateral Debt Securities or the Eligible Investments or other securities of the issuers of Collateral Debt Securities or Eligible Investments. The Collateral Manager and any of its Affiliates shall be free, in its or their sole discretion, to make recommendations to others and to effect transactions on behalf of itself or for others, which may be the same as or different from those effected with respect to the Collateral. It is understood and agreed that the members, officers and directors of the Collateral Manager may engage in any other business activity or render services for its own account or to any other Person or serve as partners, employees, officers or directors of any other firm or corporation.

 

Subject to applicable law, nothing contained in this Agreement shall prevent the Collateral Manager or any of its Affiliates from acting either as principal or agent on behalf of others, from buying or selling, or from recommending to or directing any other account to buy or sell, at any time, securities of the same kind or class, or securities of a different kind or class of the same issuer, as those monitored or directed by the Collateral Manager to be sold hereunder or under the Indenture. It is understood that, to the extent permitted by applicable law, the Collateral Manager, its Affiliates, and any officer, director, stockholder or employee of the Collateral Manager or any such Affiliate or any member of their families or a Person advised by the Collateral Manager may have an interest in a particular transaction or in securities of the same kind or class, or securities of a different kind or class issued by the same issuer, as those monitored or whose sale or purchase the Collateral Manager may direct hereunder.

 

Unless the Collateral Manager is required by the terms of the Indenture to cause the Issuer to sell a Collateral Debt Security or an Eligible Investment, the Collateral Manager may refrain from directing the sale hereunder of such securities of (i) Persons of which the Collateral Manager, its Affiliates or any of its or its Affiliates’ officers, directors or employees are directors or officers; (ii) Persons for which the Collateral Manager or any of its Affiliates act

 

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as financial advisor or underwriter or (iii) Persons about which the Collateral Manager or any of its Affiliates have information which the Collateral Manager deems confidential or non-public or otherwise might prohibit it from trading such securities in accordance with applicable law. If the Collateral Manager, or any Affiliate thereof with respect to which the Collateral Manager exercises investment control over the investment decisions of itself or any other Person (such Person, a “ Manager Party ”) owns any security that is issued by the same issuer as, and is substantially similar in terms of seniority, security (including available guarantees or other credit support) and right of payment to, a Collateral Debt Security owned by the Issuer (such security owned by a Manager Party, a “ Corresponding Security ”) and a Manager Party intends to dispose of such Corresponding Security, unless the Collateral Manager is required by the terms of the Indenture, the Collateral Manager shall have no obligation to cause the Issuer to sell the related Collateral Debt Security held by the Issuer and the Collateral Manager shall not be liable to the Issuer, any Noteholder or any other person for its decision not to sell the related Collateral Debt Security held by the Issuer if in the reasonable business judgment of the Collateral Manager the retention of such Collateral Debt Security is in the best interests of the Issuer. The Collateral Manager shall not be obligated to utilize with respect to the Collateral any particular transaction opportunity of which it becomes aware.

 

Section 5. Conflicts of Interest.

 

The Issuer acknowledges that various potential and actual conflicts of interest may arise from the overall activities of the Collateral Manager and its Affiliates, including those described in the Offering Circular dated June 28, 2005 (the “ Offering Circular ”). Affiliates of the Collateral Manager may be the issuer, the servicer, the master servicer, the special servicer, the collateral manager or placement agent with respect to certain series of Collateral Debt Securities held by the issuer (an “ Underlying Series ”). The Collateral Manager and its Affiliates may have economic interests in or other relationships with respect to an Underlying Series. In particular, such persons may make and/or hold an investment in an issuer’s securities that may be pari passu, senior or junior in ranking to an investment in such issuer’s securities made and/or held by the Issuer or serve as servicer, master servicer, special servicer or placement agent or otherwise have ongoing relationships with respect to the Underlying Series. Taberna Capital Management was previously owned by Cohen Bros. LLC, an affiliate of Cohen Bros. & Company. Cohen Bros, LLC has since contributed ownership of Taberna Capital Management to Taberna Realty Finance Trust. Cohen Bros. & Company, has acted or may act as a placement agent on behalf of certain Collateral Debt Securities Issuers for a portion of the Collateral Debt Securities purchased by the Issuer on the Closing Date. In such capacity as a placement agent, Cohen Bros. & Company may be paid origination fees by the Collateral Debt Securities Issuers. This represents a conflict of interest because of Cohen Bros. & Company’s desire to receive origination fees and sell the Collateral Debt Securities at the highest price for the benefit of the Collateral Debt Securities Issuers while at the same time the Collateral Manager desires to acquire Collateral Debt Securities for the Issuer. The Collateral Manager may be responsible for the investment decisions made on behalf of other advisory clients, including certain discretionary accounts. In the event that, in light of market conditions and investment objectives, the Collateral Manager determines that it would be advisable to (a) facilitate the sale of the same Collateral Debt Security both for the Issuer, and for either the proprietary account of the Collateral Manager or any Affiliate of the Collateral Manager or for another client of the Collateral Manager or any Affiliate of the Collateral Manager or (b) facilitate the acquisition of

 

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the same Additional Collateral Debt Security both for the Issuer, and for either the proprietary account of the Collateral Manager or any Affiliate of the Collateral Manager or for another client of the Collateral Manager or any Affiliate of the Collateral Manager, then, in each such case, the purchases or sales will be allocated in a manner believed by the Collateral Manager to be equitable and which is consistent with the Collateral Manager’s obligations hereunder, its standard practices and applicable law. Nevertheless, under some circumstances, such allocation may adversely affect the Issuer with respect to the price or size or the securities positions obtainable or salable. Moreover, it is possible, due to differing investment objectives or other reasons, that the Collateral Manager or its Affiliates may purchase securities or loans of an issuer for one client and sell such securities or loans for another client. The Collateral Manager and its Affiliates may invest in securities or loans that are within the investment objectives of the Issuer. The Collateral Manager and its Affiliates may also invest in securities through different entities which may have similar or identical investment objectives as the Issuer.

 

Section 6. Records; Requests for Information; Confidentiality.

 

(a) The Collateral Manager shall maintain appropriate books of account and records relating to services performed hereunder, and such books of account and records shall be accessible for inspection by a representative of the Issuer and, subject to applicable confidentiality agreements entered into by the Collateral Manager or the Issuer related to the Collateral Debt Securities, the Trustee, the Placement Agent, the Preferred Shareholders, the Noteholders, each Rating Agency and the Independent accountants appointed by the Issuer pursuant to Section 10.10 of the Indenture at any time during the Collateral Manager’s normal business hours and upon not less than two (2) Business Days’ prior notice. Subject to applicable confidentiality agreements entered into by the Collateral Manager or the Issuer related to the Collateral Debt Securities, the Collateral Manager shall respond to reasonable requests for information from Noteholders and Preferred Shareholders regarding the operations and performance of the Collateral Manager hereunder and under the Indenture.

 

(b) Subject to clause (c) below, the Collateral Manager shall keep confidential any and all information obtained in connection with the services rendered hereunder and shall not disclose any such information to non-affiliated third parties except (i) with the prior written consent of the Issuer, (ii) such information as a Rating Agency shall reasonably request in connection with the rating of the Securities, (iii) as required under any applicable law or regulation, constituting document or court order or by the rules or regulations of any self-regulating organization, body or official having jurisdiction over the Collateral Manager, (iv) to its professional advisors, (v) such information as shall have been publicly disclosed other than in violation of this Agreement, (vi) such information that was or is obtained by the Collateral Manager on a non-confidential basis or (vii) in connection with effecting transactions on behalf of the Issuer in accordance with this Agreement or the Indenture. For purposes of this Section 6 , the Trustee, the Noteholders, Preferred Shareholders, any successor Collateral Manager, the Administrative Agent and the Placement Agent shall in no event be considered “non-affiliated third parties.”

 

(c) The parties hereto hereby agree that each such party (and each of their respective, and their respective affiliates’, employees, officers, directors, agents and advisors) is, and has been from the commencement of discussions with respect to this transaction, permitted to disclose to any and all Persons, without limitation of any kind, the tax treatment, tax structure and tax

 

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aspects (as such terms are used in Internal Revenue Code Sections 6011, 6111 and 6112 and the regulations promulgated thereunder) of this transaction, and all materials of any kind (including tax opinions or other tax analyses) that are or have been provided to such parties related to such tax structure and tax aspects. Each party hereto further acknowledges and agrees that its disclosure of the tax structure or tax aspects of this transaction is not limited in any way by any express or implied understanding or agreement, oral or written (whether or not such understanding or agreement is legally binding). Furthermore, each of the parties hereto acknowledges and agrees that it does not know or have reason to know that its use or disclosure of information relating to the tax structure or tax aspects of this transaction is limited in any other manner (such as where this Agreement is claimed to be proprietary or exclusive with respect to the tax structure or tax aspects of this transaction) for the benefit of any other Person. To the extent that disclosure of the tax structure or tax aspects of this transaction by any party hereto is limited by any existing agreement between such parties, such limitation is agreed to be void ab initio and such agreement is hereby amended to permit disclosure of the tax structure and tax aspects of this transaction as provided in this paragraph (c). Subject to this paragraph (c) and paragraphs (a) and (b) of this Section 6 and except as otherwise provided in this Agreement or as required by law, this Agreement shall be treated by the parties hereto as confidential.

 

Section 7. Certain Obligations of the Collateral Manager.

 

Subject to the terms of the Indenture and subject to the limitations set forth in Section 10 hereof, the Collateral Manager shall not knowingly take any action which would (a) materially adversely affect the status of the Issuer for purposes of United States federal or state law or any other law which is known by the Collateral Manager to be applicable to the Issuer, (b) not be permitted by the Issuer’s Charter, (c) violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Issuer, including, without limitation, actions which would violate any United States federal, state or other applicable securities law which is known by the Collateral Manager to be applicable to the Issuer, (d) require registration of the Issuer or the pool of Collateral as an “investment company” under the Investment Company Act, (e) result in the Issuer violating the terms of the Indenture in any material respect or (f) result in a material adverse tax consequence to the Issuer. If the Collateral Manager is requested or directed to take any such action by the Issuer, the Collateral Manager shall promptly notify the Issuer, the Trustee, the Hedge Counterparty and the Rating Agencies of the Collateral Manager’s judgment that such action would have one or more of the consequences set forth above and need not take such action unless the Issuer again requests or directs the Collateral Manager to do so and (i) with respect to any event set forth in clause (e) above, the Trustee requests the Collateral Manager to do so and (ii) a Majority of the Controlling Class of Notes and a Majority-in-Interest of Preferred Shareholders shall both have consented thereto in writing; provided that, if the terms of the Indenture require that the consent of a greater percentage of Holders of Notes or Preferred Shareholders would be required in order for the Issuer to request such action, such greater percentage of Holders of Notes or Preferred Shareholders shall have consented thereto in writing. Notwithstanding any such request, the Collateral Manager need not take such action unless (i) arrangements satisfactory to it are made to insure or indemnify the Collateral Manager from any liability it may incur as a result of such action and (ii) if the Collateral Manager so requests in respect of a question of law, the Issuer delivers to the Collateral Manager an Opinion of Counsel (from outside counsel) that the action so requested does not violate any law, rule or regulation of any governmental body or agency having

 

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jurisdiction over the Issuer. The Collateral Manager shall not be liable to the Issuer, the Trustee, the Noteholders, the Preferred Shareholders or any other Person except as provided in Section 10 of this Agreement.

 

The Collateral Manager shall be entitled to treat any notice or other communication that on its face comes from the Issuer as having been sent by the Issuer unless it has actual knowledge that the Issuer has not sent such notice or other communication.

 

Section 8. Compensation.

 

As compensation for the performance of its services and obligations as Collateral Manager under the terms of this Agreement, the Issuer shall pay to the Collateral Manager (i) a fee (the “ Base Collateral Management Fee ”), in an amount (which shall be certified by the Collateral Manager to the Trustee) equal to 0.20%  per annum of the Quarterly Asset Amount for each Due Period and (ii) a fee (the “ Subordinate Collateral Management Fee ” and, together with the Base Collateral Management Fee, the “ Collateral Management Fee ”), in an amount (which shall be certified by the Collateral Manager to the Trustee) equal to 0.20%  per annum of the Quarterly Asset Amount for such Due Period, in each case subject to the Priority of Payments. In addition to the Collateral Management Fee, the Collateral Manager will receive from the Issuer a structuring fee of approximately 0.50% of the Aggregate Ramp-Up Par Amount.

 

The Collateral Management Fee is payable from Interest Proceeds and, if Interest Proceeds are not sufficient, from Principal Proceeds, in each case in accordance with the Priority of Payments. The Collateral Management Fee will accrue from the Closing Date and will be payable in accordance with Article 11 of the Indenture and the Priority of Payments. If on any Distribution Date that there are insufficient funds to pay the Base Collateral Management Fee then due in full in accordance with the Priority of Payments, a portion of the Base Collateral Management Fee equal to the shortfall will be deferred and will accrue interest at a rate of six-month LIBOR per annum and will be payable on subsequent Distribution Dates on which funds are available therefor according to the Priority of Payments. Any interest due on the unpaid Base Collateral Management Fee will thereupon constitute accrued and unpaid Base Collateral Management Fee.

 

The Collateral Manager shall be responsible for all expenses incurred in the performance of its obligations under this Agreement except as otherwise provided herein or in the Indenture.

 

If this Agreement is terminated pursuant to Sections 13 or 14 hereof or otherwise hereunder, the Collateral Management Fee calculated as provided in this Section 8 shall be prorated for any partial Due Period during which this Agreement was in effect and shall be due and payable on the first Distribution Date following the date of such termination subject to and in accordance with Article 11 of the Indenture.

 

In the event that an Optional Redemption occurs with respect to the Securities on or prior to the Distribution Date in August 2010, the Collateral Manager shall be entitled to a Collateral Manager Fee for services rendered payable on the date of such redemption equal to the difference between (i) $5,000,000 and (ii) the aggregate amount of Base Collateral Management

 

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