Exhibit 10.6
LETTER
AGREEMENT
Date: September 23, 2008
Beneficiary: Citi
Institutional Liquidity Fund plc
Letter of Credit No.
63662891
We refer to (i) Letter
of Credit no. 63662891 issued by Citibank, N.A. (“
Issuer ”) in favor of you dated as of September 23,
2008 (the “ Letter of Credit ”) for the account
of LM Capital Support V, LLC, a Maryland limited liability company
and Legg Mason, Inc., a Maryland corporation (collectively, “
we ” or the “ Applicants ”) and
related to the Securities (as defined below) and (ii) the related
Agreement for Standby Letters of Credit dated as of September 18,
2008 among us and Issuer (the “ Letter of Credit
Agreement ”).
In consideration of the
issuance of the Letter of Credit and our obligations in respect
thereof under the Letter of Credit Agreement and other related
agreements with the Issuer, you hereby covenant and agree as
follows:
(1)
You shall immediately
terminate the Letter of Credit in accordance with the terms thereof
upon the occurrence of any of the following events prior to
September 18, 2009:
(a)
You have sold or
otherwise disposed of all commercial paper and other securities
issued by Gryphon Funding Ltd. in which you have invested
(the “ Securities ”) and either have not
realized any loss therefrom or have made draws under the Letter of
Credit or Letter of Credit number 61670748 issued by Citibank, N.A.
in favor of you dated as of November 2, 2007 (the “ Other
Letter of Credit ”) as a result of such sale or
disposition in an aggregate amount equal to all such
losses;
(b)
All Securities have been
restructured, modified, refinanced, exchanged into or replaced by
new debt rated at least “P-1” (or the then equivalent
grade) by Moody’s (as defined below) or “A-1” (or
the then equivalent grade) by S&P (as defined below) that is
eligible to be held by a money market fund under Rule 2a-7 of the
Investment Company Act of 1940 (each such transaction, a “
Transaction ”), of which the aggregate principal
amount, plus the amount of any cash consideration received by you
in respect thereof and any amounts drawn under the Letter of Credit
or Other Letter of Credit as a result of such transaction, is no
less than the amortized cost of the Securities that were so
restructured, modified, refinanced, exchanged or replaced on the
date used in such Transaction to determine the amount of securities
to be received in such Transaction;
(c)
You have been repaid in
full in respect of all Securities;
(d)
Upon our request if (i)
we have obtained guarantees, insurance, contractual rights or any
other supporting obligations relating to the Securities to replace
the Letter of Credit, which replacement would not cause a downgrade
of your ratings or you to be placed on credit watch (a “
Ratings Event ”) by Moody’s Investors Service
Inc. (“ Moody’s ”) or Standard &
Poor’s, a division of The McGraw-Hill Companies, Inc.
(“ S&P ”) or (ii) we have received written
confirmation from Moody’s and S&P that a termination of
the Letter of Credit would not result in a Ratings Event;
or
(e)
The Securities are rated
“P-1” (or the then equivalent grade) or higher by
Moody’s or “A-1” (or the then equivalent grade)
or higher by S&P.
(2)
You agree that you will
not make any drawings under the Letter of Credit (a “
Drawing ”) unless
(a)
the aggregate amount to
be drawn in such Drawing plus the amounts drawn in any and all
other Drawings does not exceed $94,785,000 (the “ Maximum
Amount ”); and
(b)
one or more of the
following events has occurred and is continuing:
(i)
you have realized a loss
from a sale or other disposition of the Securities;
(ii)
All or any portion of
the Securities has been restructured, modified, refinanced,
exchanged into or replaced by new debt (each such transaction, a
“ Transaction ”), of which the aggregate
principal amount, plus the amount of any cash consideration
received by you in respect thereof, is less than the amortized cost
of the Securities so restructured, modified, refinanced, exchanged
or replaced on the date used in such Transaction to determine the
amount of securities to be received in such Transaction, or any
amount (including principal
