(e)                                   taking action, or advising the Trustee with respect to actions to be taken, with respect to the Issuer’s exercise of any rights (including, without limitation, voting rights, tender rights and rights arising in connection with the bankruptcy or insolvency of an issuer or the consensual or non-judicial restructuring of the debt or equity of an issuer) or remedies in connection with the Collateral Debt Securities and Eligible Investments, as provided in the related Underlying Instruments, including in connection with an Offer or a default, and participating in the committees or other groups formed by creditors of an issuer, or taking any other action with respect to Collateral Debt Securities and Eligible Investments which the Collateral Manager determines in the reasonable exercise of the Collateral Manager’s business judgment is in the best interests of the Noteholders in accordance with and as permitted by the terms of the Indenture;

 

(f)                                     consulting with the Rating Agencies at such times as may be reasonably requested by the Rating Agencies and providing to the Rating Agencies any information reasonably requested in connection with the Rating Agencies’ maintenance of their ratings of the Notes and their assigning credit indicators to prospective Collateral Debt Securities, if applicable;

 

(g)                                  determining whether specific Collateral Debt Securities are Credit Risk Securities, Defaulted Securities or Written Down Securities and determining whether such Collateral Debt Securities, and any other Collateral Debt Securities that are permitted or required to be sold pursuant to the Indenture, should be sold, and directing the Trustee to effect a disposition of any such Collateral Debt Securities, subject to and in accordance with the Indenture;

 

(h)                                  (i) monitoring the Assets on an ongoing basis and (ii) providing or causing to be provided to the Issuer and/or the other applicable parties specified in the Indenture all reports, schedules and certificates which relate to the Assets and which the Issuer is required to prepare and deliver under the Indenture, which are not prepared and delivered by the Trustee on behalf of the Issuer under the Indenture, in the form and containing all information required thereby (including, in the case of the Monthly Reports and the Note Valuation Reports, providing to the Trustee the information as specified in Sections 10.9(c) and 10.9(e) of the Indenture in sufficient time for the Trustee to prepare the Monthly Reports and the Note Valuation Reports) and, if applicable, in sufficient time for the Issuer to review such required reports and schedules and to deliver them to the parties entitled thereto under the Indenture;

 

(i)                                      managing the Issuer’s investments in accordance with the Indenture, including the limitations relating to the Eligibility Criteria, the Coverage Tests, the Collateral Quality Tests, the Reinvestment Criteria and the other requirements of the Indenture, and taking any action that the Collateral Manager deems appropriate and consistent with the Indenture, the Collateral Manager Servicing Standard and the standard of care set forth herein with respect to any portion of the Assets that does not constitute Collateral Debt Securities or Eligible Investments;

 

(j)                                      monitoring all Hedge Agreements and determining whether and when the Issuer should exercise any rights available under any Hedge Agreement, and causing the Issuer

 

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to enter into additional or replacement Hedge Agreements or terminating (in part or in whole) existing Hedge Agreements, in each case in accordance with the Indenture;

 

(k)                                   providing notification promptly, in writing, to the Trustee and the Issuer upon receiving actual notice that a Collateral Debt Security is subject to an Offer or has become a Defaulted Security, a Written Down Security or a Credit Risk Security;

 

(l)                                      providing notification promptly, in writing, to the Trustee and the Issuer upon becoming actually aware of a Default or an Event of Default under the Indenture;

 

(m)                                determining (subject to the Indenture) whether, in light of the composition of Collateral Debt Securities, general market conditions and other factors considered pertinent by the Collateral Manager, investments in additional Collateral Debt Securities would, at any time during the Reinvestment Period, be either impractical or not beneficial to the Holders of the Preferred Shares;

 

(n)                                  if the Collateral Manager elects to amortize the Notes pursuant to and in accordance with Section 9.7 of the Indenture, providing notification, in writing, to the Trustee, the Issuer, the Co-Issuer and each Hedge Counterparty of (A) such election and (B) the amount of proceeds that will be used to so amortize the Notes;

 

(o)                                  taking reasonable action on behalf of the Issuer to effect any Optional Redemption, any Tax Redemption, any Auction Call Redemption or any Clean-up Call in accordance with the Indenture;

 

(p)                                  on the Stated Maturity of the Notes or in connection with any Optional Redemption, any Tax Redemption, any Auction Call Redemption or any Clean-up Call, liquidating any remaining Hedge Agreements;

 

(q)                                  monitoring the ratings of the Collateral Debt Securities and the Issuer’s compliance with the covenants by the Issuer in the Indenture;

 

(r)                                     assisting the Issuer in (i) taking any action in order to effect and/or maintain the listing of any of the Notes on the Irish Stock Exchange or (ii) obtaining any waiver from the Irish Stock Exchange, or (iii) providing other information related to the Issuer that is reasonably available to the Collateral Manager, in each case, when specifically requested by the Irish Stock Exchange;

 

(s)                                   complying with such other duties and responsibilities as may be specifically required of the Collateral Manager by the Indenture or this Agreement;

 

(t)                                     complying in all material respects with the Investment Advisers Act of 1940, as amended (the “ Advisers Act ”), with respect to the Issuer;

 

(u)                                  in order to render the Securities eligible for resale pursuant to Rule 144A under the Securities Act, while any of such Securities remain outstanding, making available, upon request, to any Holder or prospective purchaser of such Securities, additional information regarding the Issuer and the Assets if such information is reasonably available to the Collateral

 

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Manager and constitutes Rule 144A Information required to be furnished by the Issuer pursuant to Section 7.13 of the Indenture, unless the Issuer furnishes information to the United States Securities and Exchange Commission pursuant to Section 13 or Section 15(d) of the Exchange Act;

 

(v)                                  upon reasonable request, assisting the Trustee or the Issuer with respect to such actions to be taken after the Closing Date, as is necessary to maintain the clearing and transfer of the Notes through DTC; and

 

(w)                                in accordance with the Collateral Manager Servicing Standard, enforcing the rights of the Issuer as holder of the Collateral Debt Securities, including without limitation taking such action as is necessary to enforce the Issuer’s rights with respect to remedies related to breaches of representations, warranties or covenants in the Underlying Instruments for the benefit of the Issuer.

 

In furtherance of the foregoing, the Issuer hereby appoints the Collateral Manager the Issuer’s true and lawful agent and attorney-in-fact, with full power of substitution and full authority in the Issuer’s name, place and stead and without any necessary further approval of the Issuer, in connection with the performance of the Collateral Manager’s duties provided for in this Agreement, including the following powers:  (i) in accordance with the terms and conditions of the Indenture and this Agreement, to buy, sell, exchange, convert and otherwise trade Collateral Debt Securities and Eligible Investments, and (ii) to execute (under hand, under seal or as a deed) and deliver all necessary and appropriate documents and instruments on behalf of the Issuer to the extent necessary or appropriate to perform the services referred to in (a) through (w) above of this Section 1 and under the Indenture.  The foregoing power of attorney is a continuing power, coupled with an interest, and shall remain in full force and effect until revoked by the Issuer in writing by virtue of the termination of this Agreement pursuant to Section 12 hereof or an assignment of this Agreement pursuant to Section 17 hereof; provided that any such revocation shall not affect any transaction initiated prior to such revocation.  Nevertheless, if so requested by the Collateral Manager, a purchaser of a Collateral Debt Security or Eligible Investment or a Hedge Counterparty, the Issuer shall ratify and confirm any such sale or other disposition by executing and delivering to the Collateral Manager, such purchaser or such Hedge Counterparty all proper bills of sale, assignments, releases and other instruments as may be designated in any such request.

 

The Collateral Manager does not hereby guarantee that sufficient funds will be available on each Payment Date to satisfy any such payment obligations.  The Collateral Manager shall perform its obligations hereunder and under the Indenture with reasonable care and in good faith, using a degree of skill and attention no less than that which it (a) exercises with respect to comparable assets that it manages for itself and (b) exercises with respect to comparable assets that it manages for others, and in a manner consistent with the practices and procedures then in effect followed by reasonable and prudent institutional managers of national standing relating to assets of the nature and character of the Assets, except as expressly provided in this Agreement or in the Indenture.  In addition, the Collateral Manager shall use commercially reasonable efforts to ensure that directions to the Trustee with respect to the purchase of Eligible Investments are made by the Collateral Manager only if, in the Collateral Manager’s commercially reasonable judgment at the time of such direction, payment at

 

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settlement in respect of any such purchase could be made without any breach or violation of, or default under, the terms of the Indenture or this Agreement.  The Collateral Manager shall comply with and perform all the duties and functions that have been specifically delegated to the Collateral Manager under the Indenture.  The Collateral Manager shall be bound to follow any amendment, supplement or modification to the Indenture of which it has received written notice at least ten Business Days prior to the execution and delivery thereof by the parties thereto; provided , however , that, with respect to any amendment, supplement, modification or waiver to the Indenture which may affect the Collateral Manager, the Collateral Manager shall not be bound thereby (and the Issuer agrees that it will not permit any such amendment, supplement, modification or waiver to become effective) unless the Collateral Manager has been given prior written notice thereof and gives its written consent thereto (which consent shall not be unreasonably withheld) to the Trustee and the Issuer prior to the effectiveness thereof.

 

The Collateral Manager shall take all actions reasonably requested by the Trustee to facilitate the perfection of the Trustee’s security interest in the Assets pursuant to the Indenture.

 

2.                                        Delegation of Duties .  The Collateral Manager may delegate to third parties (including its Affiliates), which it shall select with reasonable care, and employ third parties to execute any or all of the duties assigned to the Collateral Manager hereunder; provided , however , that (i) the Collateral Manager shall not be relieved of any of its duties hereunder as a result of such delegation to or employment of third parties, (ii) the Collateral Manager shall be solely responsible for the fees and expenses payable to any such third party, except as set forth in Section 6 hereof, and (iii) such delegation does not constitute an “assignment” under the Advisers Act.

 

3.                                        Purchase and Sale Transactions; Brokerage .

 

(a)                                   The Collateral Manager shall seek to obtain the best overall terms for all orders placed with respect to the Assets, considering all reasonable circumstances, including, if applicable, the conditions or terms of early redemption of the Securities, it being understood that the Collateral Manager has no obligation to obtain the lowest prices available.  Subject to the foregoing objective, the Collateral Manager may take into consideration all factors the Collateral Manager reasonably determines to be relevant, including, without limitation, timing, general relevant trends and research and other brokerage services and support equipment and services related thereto furnished to the Collateral Manager or its Affiliates by brokers and dealers in compliance with Section 28(e) of the Exchange Act or, if Section 28(e) of the Exchange Act is not applicable, in accordance with the provisions set forth herein.  Such services may be used in connection with the other advisory activities or investment operations of the Collateral Manager and/or its Affiliates.  In addition, the Collateral Manager may take into account available prices, rates of brokerage commissions and size and difficulty of the order, in addition to other relevant factors (such as, without limitation, execution capabilities, reliability (based on total trading rather than individual trading), integrity, financial condition in general, execution and operational capabilities of competing brokers and/or dealers, and the value of the ongoing relationship with such brokers and/or dealers), without having to demonstrate that such factors are of a direct benefit to the Issuer in any specific transaction.  The Issuer acknowledges and agrees that (i) the determination by the Collateral Manager of any benefit to the Issuer is subjective and represents

 

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the Collateral Manager’s evaluation at the time that the Issuer will be benefited by relatively better purchase or sales prices, lower brokerage commissions and beneficial timing of transactions or a combination of any of these and/or other factors and (ii) the Collateral Manager shall be fully protected with respect to any such determination to the extent the Collateral Manager acts in good faith, and in accordance with the Collateral Manager Servicing Standard (to the extent applicable), and without gross negligence, willful misconduct or reckless disregard of the obligations of the Issuer hereunder or under the terms of the Indenture.

 

The Collateral Manager may aggregate sales and purchase orders of securities placed with respect to the Assets with similar orders being made simultaneously for other accounts managed by the Collateral Manager or with accounts of the Affiliates of the Collateral Manager if in the Collateral Manager’s sole judgment, exercised in good faith, such aggregation will not have an adverse effect on the Issuer.  When any such aggregate sales or purchase orders occur, the objective of the Collateral Manager (and any of its Affiliates involved in such transactions) shall be to allocate the executions among the accounts in a manner fair and equitable to all such accounts and generally to seek to allocate securities available for investment to all such accounts pro rata in proportion to the optimum amount sought by the Collateral Manager for each respective account.  In connection with the foregoing, the objective of the Collateral Manager shall be to allocate investment opportunities and the purchases or sales of instruments in a manner believed by the Collateral Manager, in good faith, taking into account the Collateral Manager’s Servicing Standard (to the extent applicable), to be fair and equitable.

 

In connection with any purchase of a portfolio of assets other than securities, the objective of the Collateral Manager shall be to allocate such assets (and the aggregate purchase price paid for such assets) among the Collateral Manager’s clients (including the Issuer) in a manner believed by the Collateral Manager to be fair and equitable.  The Issuer acknowledges and agrees that the Collateral Manager shall be fully protected with respect to any such allocation to the extent the Collateral Manager acts in good faith, taking into account the Collateral Manager’s Servicing Standard (to the extent applicable), and without gross negligence, willful misconduct or reckless disregard of the obligations of the Issuer hereunder or under the terms of the Indenture.

 

All purchases and sales of Eligible Investments and Collateral Debt Securities by the Collateral Manager on behalf of the Issuer shall be conducted in compliance with all applicable laws (including, without limitation, Section 206(3) of the Advisers Act) and the terms of the Indenture.  After (and excluding) the Closing Date, the Collateral Manager shall cause any purchase or sale of any Collateral Debt Security or Eligible Investment to be conducted on an arm’s-length basis or, if applicable, in compliance with Section 3(b) hereof.  The parties hereto acknowledge and agree that all purchases (including, without limitation, purchases from Affiliates of the Collateral Manager) of Eligible Investments and Collateral Debt Securities by the Collateral Manager on behalf of the Issuer on the Closing Date (including, without limitation, all such purchases from Affiliates of the Collateral Manager) in a manner contemplated by the final Offering Memorandum, dated July 8, 2005 (the “ Offering Memorandum ”), related to the Classes of Notes offered thereby (or any supplement thereto) are hereby approved.

 

(b)                                  The Collateral Manager, subject to and in accordance with the Indenture, may effect direct trades between the Issuer and the Collateral Manager or any of its Affiliates

 

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acting as principal or agent (any such transaction, a “ Related Party Trade ”); provided , however , that a Related Party Trade after (and excluding) the Closing Date, other than Credit Risk/Defaulted Security Cash Purchases, sales of property or securities in accordance with the Origination Agreement and sales of Assets pursuant to an auction in connection with an Auction Call Redemption or in connection with a redemption of the Notes pursuant to Article 9 of the Indenture, may be effected only (i) upon disclosure to and with the prior consent of an advisory committee containing at least one member independent from the Collateral Manager (whose affirmative vote will be required to grant such consent) acting as a surrogate for, and in the best interest of, the holders of the Securities that has been appointed from time to time as needed by the Issuer or by the Collateral Manager following the resignation of any member (the “ Advisory Committee ”) and based on the Advisory Committee’s determination that such transaction is on terms substantially as favorable to the Issuer as would be the case if a such transaction were effected with Persons not so affiliated with the Collateral Manager or any of its Affiliates and (ii) subject to a requirement that the purchase price in respect of any Collateral Debt Security acquired by the Issuer from a Seller pursuant to such a direct trade may not exceed the Principal Balance thereof plus accrued and unpaid interest thereon (or, in the case of a Preferred Equity Security, all accrued and unpaid dividends or other distributions not attributable to the return of capital by its governing documents).  The Advisory Committee, if any, shall be formed subject to the Advisory Committee Guidelines attached hereto as Exhibit A (the “ Advisory Committee Guidelines ”).  The Issuer consents and agrees that, if any transaction relating to the Issuer, including any transaction effected between the Issuer and the Collateral Manager or its Affiliates, shall be subject to the disclosure and consent requirements of Section 206(3) of the Advisers Act, such requirements shall be satisfied with respect to the Issuer and all Holders of the Securities if disclosure shall be given to, and consent obtained from, the Advisory Committee.  For avoidance of doubt, it is hereby understood and agreed by the parties hereto that no disclosure to, or consent of, the Advisory Committee shall be required with respect to Credit Risk/Defaulted Security Cash Purchases, sales of property or securities in accordance with the Origination Agreement and sales of Assets pursuant to an auction in connection with an Auction Call Redemption or in connection with a redemption of the Notes pursuant to Article 9 of the Indenture.  Notwithstanding the foregoing, to the extent such provisions are determined not to satisy the requirements of the Advisers Act, the Collateral Manager shall take such actions in connection with any Related Party Trade as will satisfy the requirements of Section 206(3) of the Advisers Act.

 

4.                                        Representations and Warranties of the Issuer .  The Issuer represents and warrants to the Collateral Manager that:

 

(a)                                   the Issuer (i) has been duly incorporated and registered as an exempted company and is validly existing under the laws of the Cayman Islands, (ii) has full power and authority to own the Issuer’s assets and the securities proposed to be owned by the Issuer and included among the Assets and to transact the business for which the Issuer was organized, and (iii) is duly qualified under the laws of each jurisdiction where the Issuer’s ownership or lease of property or the conduct of the Issuer’s business requires or the performance of the Issuer’s obligations under this Agreement and the Indenture would require such qualification, except for failures to be so qualified that would not in the aggregate have a material adverse effect on the business, operations, assets or financial condition of the Issuer or the ability of the Issuer to perform its obligations under, or on the validity or enforceability of, this Agreement and the

 

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Indenture; the Issuer has full power and authority to execute, deliver and perform the Issuer’s obligations hereunder and thereunder; this Agreement and the Indenture have been duly authorized, executed and delivered by the Issuer and constitute legal, valid and binding agreements enforceable against the Issuer in accordance with their terms except that the enforceability thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship or other similar laws now or hereafter in effect relating to creditors’ rights and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law);

 

(b)                                  no consent, approval, authorization or order of or declaration or filing with any government, governmental instrumentality or court or other Person is required for the performance by the Issuer of its duties hereunder or under the Indenture, except those that may be required under state securities or “blue sky” laws or the applicable laws of any jurisdiction outside of the United States, and such as have been duly made or obtained;

 

(c)                                   neither the execution, delivery and performance of this Agreement or the Indenture nor the performance by the Issuer of its duties hereunder or thereunder (i) conflicts with or will violate or result in a default under the Issuer’s Governing Documents or any material contract or agreement to which the Issuer is a party or by which it or its assets may be bound, or any law, decree, order, rule, or regulation applicable to the Issuer of any court or regulatory, administrative or governmental agency, body or authority or arbitrator having jurisdiction over the Issuer or its properties, or (other than as contemplated or permitted by the Indenture) will result in a lien on any of the property of the Issuer and (ii) would have a material adverse effect upon the ability of the Issuer to perform its duties under this Agreement or the Indenture;

 

(d)                                  the Issuer and its Affiliates are not in violation of any Federal, state or Cayman Islands laws or regulations, and there is no charge, investigation, action, suit or proceeding before or by any court or regulatory agency pending or, to the best knowledge of the Issuer, threatened that, in any case, would have a material adverse effect upon the ability of the Issuer to perform its duties under this Agreement or the Indenture;

 

(e)                                   the Issuer is not an “investment company” under the Investment Company Act; and

 

(f)                                     the assets of the Issuer do not and will not at any time constitute the assets of any plan subject to the fiduciary responsibility provisions of ERISA or of any plan within the meaning of Section 4975(e)(1) of the Code.

 

5.                                        Representations and Warranties of the Collateral Manager .  The Collateral Manager represents and warrants to the Issuer that:

 

(a)                                   the Collateral Manager (i) has been duly organized, is validly existing and is in good standing under the laws of the State of Delaware, (ii) has full power and authority to own the Collateral Manager’s assets and to transact the business in which it is currently engaged, and (iii) is duly qualified and in good standing under the laws of each jurisdiction where the Collateral Manager’s ownership or lease of property or the conduct of the Collateral Manager’s business requires, or the performance of this Agreement and the Indenture would require, such

 

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qualification, except for failures to be so qualified that would not in the aggregate have a material adverse effect on the business, operations, assets or financial condition of the Collateral Manager or the ability of the Collateral Manager to perform its obligations under, or on the validity or enforceability of, this Agreement and the provisions of the Indenture applicable to the Collateral Manager; the Collateral Manager has full power and authority to execute, deliver and perform this Agreement and the Collateral Manager’s obligations hereunder and the provisions of the Indenture applicable to the Collateral Manager; this Agreement has been duly authorized, executed and delivered by the Collateral Manager and constitutes a legal, valid and binding agreement of the Collateral Manager, enforceable against it in accordance with the terms hereof, except that the enforceability hereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law);

 

(b)                                  neither the Collateral Manager nor any of its Affiliates is in violation of any Federal or state securities law or regulation promulgated thereunder that would have a material adverse effect upon the ability of the Collateral Manager to perform its duties under this Agreement or the Indenture, and there is no charge, investigation, action, suit or proceeding before or by any court or regulatory agency pending or, to the best knowledge of the Collateral Manager, threatened which could reasonably be expected to have a material adverse effect upon the ability of the Collateral Manager to perform its duties under this Agreement or the Indenture;

 

(c)                                   neither the execution and delivery of this Agreement nor the performance by the Collateral Manager of its duties hereunder or under the Indenture conflicts with or will violate or result in a breach or violation of any of the terms or provisions of, or constitutes a default under:  (i) the limited liability company agreement of the Collateral Manager, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note agreement or other evidence of indebtedness or other agreement, obligation, condition, covenant or instrument to which the Collateral Manager is a party or by which the Collateral Manager is bound, (iii) any law, decree, order, rule or regulation applicable to the Collateral Manager of any court or regulatory, administrative or governmental agency, body or authority or arbitrator having jurisdiction over the Collateral Manager or its properties, and which would have, in the case of any of (i), (ii) or (iii) of this subsection (c), either individually or in the aggregate, a material adverse effect on the business, operations, assets or financial condition of the Collateral Manager or the ability of the Collateral Manager to perform its obligations under this Agreement or the Indenture;

 

(d)                                  no consent, approval, authorization or order of or declaration or filing with any government, governmental instrumentality or court or other Person is required for the performance by the Collateral Manager of its duties hereunder and under the Indenture, except such as have been duly made or obtained;

 

(e)                                   the Section entitled “The Collateral Manager” in the Offering Memorandum, as of the date thereof (including as of the date of any supplement thereto) and as of the Closing Date does not contain any untrue statement of a material fact and does not omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and

 

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(f)                                     the Collateral Manager is not required to register as an investment adviser under the Advisers Act.

 

6.                                        Expenses .  Both parties hereto acknowledge and agree that a portion of the gross proceeds received from the issuance and sale of the Securities will be used to pay certain organizational and structuring fees and expenses of the Co-Issuers, including the legal fees and expenses of counsel to the Collateral Manager.  The Collateral Manager shall pay all expenses and costs incurred by it in the course of performing its obligations under this Agreement; provided , however , that the Collateral Manager shall not be liable for, and (subject to the Priority of Payments set forth in the Indenture and to the extent funds are available therefor) the Issuer shall be responsible for the payment of, reasonable expenses and costs (including, without limitation, reasonable travel expenses) of (i) independent accountants, consultants and other advisers retained by the Issuer or by the Collateral Manager on behalf of the Issuer in connection with the services provided by the Collateral Manager hereunder, (ii) legal advisers retained by the Issuer or by the Collateral Manager on behalf of the Issuer in connection with the services provided by the Collateral Manager hereunder and (iii) the Collateral Manager (A) to the extent of reasonable expenses disbursed or allocated in valuing the Assets, disbursed or allocated software and technology expenditures relating to the monitoring and administration of the Assets and any other reasonable expenses incurred by the Collateral Manager in connection with matters arising in the performance of its duties under this Agreement and (B) for an allocable share of the cost of certain credit databases used by the Collateral Manager in providing services to the Issuer under this Agreement.

 

7.                                        Fees .  As compensation for the performance of its obligations as Collateral Manager hereunder and under the Indenture, the Collateral Manager will be entitled to receive (i) a fee, payable quarterly in arrears on each Payment Date in accordance with the Priority of Payments, equal to 0.15% per annum of the Net Outstanding Portfolio Balance (the “ Senior Collateral Management Fee ”) and (ii) an additional fee, payable quarterly in arrears on each Payment Date in accordance with the Priority of Payments, equal to 0.25% per annum of the Net Outstanding Portfolio Balance (the “ Subordinate Collateral Management Fee ” and, together with the Senior Collateral Management Fee, the “ Collateral Management Fee ”).  Each Collateral Management Fee will be calculated for each Interest Accrual Period assuming a 360-day year with 12 thirty-day months.  The Collateral Management Fee will be calculated based on the Net Outstanding Portfolio Balance as of the first day of the applicable Interest Accrual Period.  If on any Payment Date there are insufficient funds to pay such fees (and/or any other amounts due and payable to the Collateral Manager) in full, in accordance with the Priority of Payments, the amount not so paid shall be deferred and such amounts shall be payable on such later Payment Date on which funds are available therefor as provided in the Priority of Payments set forth in the Indenture.  Any accrued and unpaid Senior Collateral Management Fee that is deferred due to the operation of the Priority of Payments shall accrue interest at LIBOR in effect for the applicable Interest Accrual Period computed on an actual 360-day basis.  Any accrued and unpaid Subordinate Collateral Management Fee that is deferred due to the operation of the Priority of Payments shall accrue interest at LIBOR in effect for the applicable Interest Accrual Period on an actual 360-day basis.  Notwithstanding any other provision hereof, the aggregate amount of all accrued but unpaid Subordinate Collateral Management Fee payable on the final Payment Date or, if earlier, following the winding up of the Issuer shall be equal to the lesser of (a) the nominal amount thereof and (b) the amount available for payment under the Priority of

 

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Payments. The Collateral Manager hereby agrees not to cause the filing of a petition in bankruptcy against the Issuer for the nonpayment to the Collateral Manager of any amounts due it hereunder except in accordance with Section 18 hereof and, subject to the provisions of Section 12, to continue to serve as Collateral Manager.  If this Agreement is terminated pursuant to Section 12 hereof or otherwise, the accrued fees payable to the Collateral Manager shall be prorated for any partial periods between the Payment Dates during which this Agreement was in effect and shall be due and payable on the first Payment Date following the date of such termination, together with all expenses payable to the Collateral Manager in accordance with Section 6 hereof, and subject to the provisions of the Indenture and the Priority of Payments.

 

8.                                        Non-Exclusivity .  Nothing herein shall prevent the Collateral Manager or any of its Affiliates or any of their officers or directors from engaging in any other businesses or providing investment management, advisory or any other types of services to any Persons, including the Issuer, the Trustee and the Noteholders, to the fullest extent permitted by applicable law; provided , however , that the Collateral Manager may not take any of the foregoing actions which the Collateral Manager knows or reasonably should know would require the Issuer or the pool of Assets to register as an “investment company” under the Investment Company Act.

 

9.                                        Conflicts of Interest .

 

(a)                                   After (but excluding) the Closing Date and the sales by Affiliates of the Collateral Manager of Collateral Debt Securities to the Issuer on the Closing Date (and except in the case of Credit Risk/Defaulted Security Cash Purchases, sales of property or securities in accordance with the Origination Agreement and sales of Assets pursuant to an auction in connection with an Auction Call Redemption or in connection with a redemption of the Notes pursuant to Article 9 of the Indenture), the Collateral Manager will not cause the Issuer to enter into any transaction with the Collateral Manager or any of its Affiliates as principal unless the applicable terms and conditions set forth in Section 3(b) are complied with.

 

(b)                                  The Collateral Manager shall perform its obligations hereunder in accordance with the requirements of the Advisers Act and the Indenture. The Issuer acknowledges that (i) the Collateral Manager and/or its Affiliates will acquire on the Closing Date 100% of each of the Class J Notes, the Class K Notes and the Preferred Shares, (ii) Affiliates of the Collateral Manager will sell Collateral Debt Securities to the Issuer on or prior to the Closing Date, and (iii) the Collateral Manager, its Affiliates and funds or accounts for which the Collateral Manager or its Affiliates acts as investment adviser may at times own Notes of one or more additional Classes.  After the Closing Date, the Collateral Manager agrees to provide to the Trustee written notice upon the acquisition or transfer (after, but excluding, the Closing Date) of any Securities held by the Collateral Manager, any of its Affiliates or any fund managed or controlled by the Collateral Manager or any Affiliate thereof.

 

(c)                                   Nothing herein shall prevent the Collateral Manager or any of its Affiliates or officers and directors of the Collateral Manager from engaging in other businesses (including financing, purchasing, owning, holding, originating or disposing of any assets or investments), or from rendering services of any kind to the Issuer and its Affiliates, the Trustee, the Holders or any other Person or entity, whether or not any of the foregoing may be competitive with the

 

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business of the Issuer or the Co-Issuer.  Without prejudice to the generality of the foregoing, directors, officers, members, partners, employees and agents of the Collateral Manager, Affiliates of the Collateral Manager, and the Collateral Manager may, among other things:

 

(i)                     serve as directors (whether supervisory or managing), officers, employees, partners, members, managers, agents, nominees or signatories for the Issuer or any Affiliate thereof, or for any obligor in respect of any of the Collateral Debt Securities or Eligible Investments, or any of their respective Affiliates, except to the extent prohibited by their respective Underlying Instruments, as from time to time amended; provided that (x) in the reasonable judgment of the Collateral Manager, such activity will not have a material adverse effect on the ability of the Issuer or the Trustee to enforce its respective rights with respect to any Assets and (y) nothing in this paragraph shall be deemed to limit the duties of the Collateral Manager set forth in Section 1 hereof;

 

(ii)                  perform, and receive fees for the performance of, services of whatever nature rendered to an obligor in respect of any of the Collateral Debt Securities or Eligible Investments, including acting as master servicer, sub-servicer or special servicer with respect to any CMBS Securities or with respect to any commercial mortgage loan constituting or underlying any Collateral Debt Security; provided that, in the reasonable judgment of the Collateral Manager, such activity will not have a material adverse effect on the ability of the Issuer or the Trustee to enforce its respective rights with respect to any of the Assets; provided , further , with respect to such services, the Collateral Manager is not acting as an agent for the Issuer;

 

(iii)               be retained to provide services unrelated to this Agreement to the Issuer or its Affiliates and be paid therefor;

 

(iv)              be a secured or unsecured creditor of, or hold an equity interest in, the Issuer, its Affiliates or any obligor of any Collateral Debt Security or Eligible Investment; provided , however , that the Collateral Manager may not be such a creditor or hold any of such interests if, in the opinion of counsel to the Issuer, the existence of such interest would require registration of the Issuer or the Assts as an “investment company” under the Investment Company Act or violate any provisions of Federal or applicable state law or any law, rule or regulation of any governmental body or agency having jurisdiction over the Issuer;

 

(v)                 own equity in or own or make loans to any issuer of REIT Debt Securities including any issuer of REIT Debt Securities obligated on any of the Collateral Debt Securities, so long as that doing so will not cause any such Collateral Debt Security to fail to comply with the Eligibility Criteria;

 

(vi)              make, hold or sell an investment in an issuer’s securities that may be pari passu, senior or junior in ranking to a Collateral Debt Security;

 

(vii)           except as otherwise provided in this Section 9, sell any Collateral Debt Security or Eligible Investment to, or purchase any Collateral Debt Security from, the Issuer while acting in the capacity of principal or agent; and

 

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(viii)        subject to its obligations in Section 1 hereof to protect the Holders, serve as a member of any “creditors’ board” with respect to any Defaulted Security, Eligible Investment or with respect to any commercial mortgage loan underlying or constituting any Collateral Debt Security or the respective borrower for any such commercial mortgage loan.

 

It is understood that the Collateral Manager and its Affiliates may engage in any other business, whether or not any of the foregoing may be competitive with the business of the Issuer or the Co-Issuer (including financing, purchasing, owning, holding, originating or disposing of any assets or investments), and furnish investment management and advisory services to others, including Persons that may have investment policies similar to those followed by the Collateral Manager with respect to the Assets and that may own instruments of the same class, or of the same type, as the Collateral Debt Securities or other instruments of the issuers of Collateral Debt Securities and may manage portfolios similar to the Assets.  The Collateral Manager and its Affiliates shall be free, in their sole discretion, to make recommendations to others, or effect transactions on behalf of themselves or for others, which may be the same as or different from those the Collateral Manager causes the Issuer to effect with respect to the Assets.

 

The Collateral Manager and its Affiliates may, and may cause or advise their respective clients to, invest in assets, investments or instruments that would be appropriate for the Issuer or the Co-Issuer or as security for the Notes and shall have no duty or obligation to offer any such asset, investment or instrument to the Issuer or the Co-Issuer.  Such investments may be different from those made to or on behalf of the Issuer.  The Collateral Manager, its Affiliates and their respective clients may have ongoing relationships with Persons whose instruments are pledged to secure the Notes and may own instruments issued by, or loans to, issuers of the Collateral Debt Securities or to any borrower or Affiliate of any borrower on any commercial mortgage loans underlying or constituting the Collateral Debt Securities or the Eligible Investments.  The Collateral Manager and its Affiliates may cause or advise their respective clients to invest in instruments that are senior to, or have interests different from or adverse to, the instruments that are pledged to secure the Notes.

 

Nothing contained in this Agreement shall prevent the Collateral Manager or any of its Affiliates from themselves 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 directed by the Collateral Manager to be purchased or sold hereunder.  It is understood that, to the extent permitted by applicable law, the Collateral Manager, its Affiliates, and any member, manager, 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 of the same issuer, as those purchased or sold by the Collateral Manager hereunder.  When the Collateral Manager is considering purchases or sales for the Issuer and one or more of such other accounts at the same time, the Collateral Manager shall allocate available investments or opportunities for sales in its discretion and make investment recommendations and decisions that may be the same as or different from those made with respect to the Issuer’s investments, in accordance with applicable law and the Collateral Manager Servicing Standard, to the extent applicable.

 

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Subject to the Indenture and the provisions of this Agreement, the Collateral Manager shall not be obligated to pursue any specific investment strategy or opportunity that may arise with respect to the Assets.

 

The Issuer hereby acknowledges and consents to the various potential and actual conflicts of interests that may exist with respect to the Collateral Manager as described above; provided , however , that nothing contained in this Section 9 shall be construed as altering the duties of the Collateral Manager set forth in this Agreement or in the Indenture.

 

10.                                  Records; Confidentiality .  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 an authorized representative of the Issuer, the Trustee and the Independent accountants appointed by the Issuer pursuant to the Indenture at a mutually agreed-upon time during normal business hours and upon reasonable prior notice; provided that the Collateral Manager shall not be obligated to provide access to any non-public information if the Collateral Manager in good faith determines that the disclosure of such information would violate any applicable law, regulation or contractual arrangement.  The Collateral Manager shall follow its customary procedures to keep confidential all information obtained in connection with the services rendered hereunder and shall not disclose any such information except (i) with the prior written consent of the Issuer (which consent shall not be unreasonably withheld), (ii) such information as the Rating Agencies shall reasonably request in connection with their rating or evaluation of the Notes and/or the Collateral Manager, as applicable, (iii) as required by law, regulation, court order or the rules, regulations, or request of any regulatory or self-regulating organization, body or official (including any securities exchange on which the Notes may be listed from time to time) having jurisdiction over the Collateral Manager or as otherwise required by law or judicial process, (iv) such information as shall have been publicly disclosed other than in violation of this Agreement, (v) to its members, officers, directors, and employees, and to its attorneys, accountants and other professional advisers in conjunction with the transactions described herein, (vi) such information as may be necessary or desirable in order for the Collateral Manager to prepare, publish and distribute to any Person any information relating to the investment performance of the Assets, (vii) in connection with the enforcement of the Collateral Manager’s rights hereunder or in any dispute or proceeding related hereto, (viii) to the Trustee, (ix) to the extent required pursuant to any Hedge Agreement of the Issuer and (x) to Holders and potential purchasers of any of the Securities.

 

Subject to compliance with the requirements of any law, rule or regulation applicable to the Collateral Manager, nothing contained herein shall prevent the Collateral Manager from discussing its activities hereunder in a general way in the normal course of its business, including, without limitation, general discussions with other Persons regarding its ability to act as a collateral manager and its past performance in such capacity.  In addition, subject to compliance with the requirements of any law, rule or regulation applicable to the Collateral Manager, with respect to information that the Collateral Manager obtains or develops regarding the Collateral Debt Securities or Eligible Investments (including, without limitation, information regarding ratings, yield, creditworthiness, financial condition and prospects of any issuer thereof) in connection with the performance of its services hereunder, nothing in this Section 10 shall prevent the Collateral Manager or its Affiliates, in the conduct of their

 

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respective businesses, from using such information or disclosing such information to others so long as such other use does not, in its reasonable judgment, disadvantage the Issuer.  Notwithstanding anything to the contrary contained in this Agreement, all persons may disclose to any and all persons, without limitation of any kind, the U.S. Federal, state and local tax treatment of the Securities and the Co-Issuers, any fact that may be relevant to understanding the U.S. Federal, state and local tax treatment of the Securities and the Issuers, and all materials of any kind (including opinions or other tax analyses) relating to such U.S. Federal, state and local tax treatment and that may be relevant to understanding such tax treatment.

 

11.                                  Term .  This Agreement shall become effective on the Closing Date and shall continue in full force and effect until the first to occur of the following:  (a) the payment in full of the Notes and the termination of the Indenture in accordance with its terms, (b) the liquidation of the Assets and the final distribution of the proceeds of such liquidation to the Holders and the Issuer, or (c) the termination of this Agreement pursuant to Section 12 hereof.

 

12.                                  Termination .  (a)  The Collateral Manager may be removed upon at least 30 days’ prior written notice if (A) Holders of at least 75% by Aggregate Outstanding Amount of each Class of Notes (voting as a separate Class) and (B) Holders of at least 75% of the Preferred Shares give written notice to the Collateral Manager, the Issuer, each Hedge Counterparty and the Trustee of such removal (including in any such calculation any Securities held by the Collateral Manager, any of its Affiliates or by any fund managed or controlled by the Collateral Manager or any Affiliate thereof); provided that if the Collateral Manager is removed pursuant to this clause (a), any successor Collateral Manager will not be permitted to be a Holder of or an Affiliate of any Holder of Securities.&nbs