SECURITY AGREEMENT

 

 

TABLE OF CONTENTS

 

			Page
ARTICLE I	DEFINITIONS		1
Section 1.01.		Definitions	1
Section 1.02.		Assumptions as to Collateral Debt Securities	2
Section 1.03.		Generic Terms	3
Section 1.04.		Times	3
ARTICLE II	THE COLLATERAL		3
Section 2.01.		Security Interests	3
Section 2.02.		Creation of Security Interest; Transfer of Control	7
Section 2.03.		Termination of Security Interests	7
Section 2.04.		Priority of Payments	7
Section 2.05.		Representations Regarding Collateral	7
ARTICLE III	CLOSING DATE ACTIONS		9
Section 3.01.		Closing Date Requirements	9
Section 3.02.		Closing Date Actions	9
ARTICLE IV	ACCOUNTS, ACCOUNTINGS AND RELEASES		10
Section 4.01.		Collection of Money	10
Section 4.02.		Collection Account	10
Section 4.03.		Interest Reserve Account	11
Section 4.04.		Expense Reserve Account	12
Section 4.05.		Collateral Account	14
Section 4.06.		Reports by Collateral Agent	14
Section 4.07.		Accountings	15
Section 4.08.		Release of Securities	21
Section 4.09.		Reports by Independent Accountants	22
Section 4.10.		Reports to Rating Agencies	22
Section 4.11.		Notices of Noteworthy Events	22
Section 4.12.		Amendments to the Transaction Documents	23
ARTICLE V	PRIORITY OF PAYMENTS		23
Section 5.01.		Disbursements of Money from Collection Account	23
Section 5.02.		Additional Provisions	28
ARTICLE VI	SALE OF COLLATERAL DEBT SECURITIES		29
Section 6.01.		Sale of Collateral Debt Securities	29
Section 6.02.		Conditions Applicable to all Transactions	29

 

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TABLE OF CONTENTS

(continued)

 

			Page
ARTICLE VII	SUBORDINATION		30
Section 7.01.		Subordination	30
ARTICLE VIII	HEDGE AGREEMENTS, INITIAL HEDGE AGREEMENT		33
Section 8.01.		Hedge Agreement Provisions	33
Section 8.02.		Initial Hedge Agreement	36
Section 8.03.		Acknowledgement of Custodian	36
ARTICLE IX	THE COLLATERAL AGENT		37
Section 9.01.		Appointment and Powers	37
Section 9.02.		Performance of Duties	37
Section 9.03.		Reliance Upon Documents	38
Section 9.04.		Eligibility of Collateral Agent	39
Section 9.05.		Successor Collateral Agent	39
Section 9.06.		Indemnification	40
Section 9.07.		Compensation and Reimbursement	40
Section 9.08.		Representations and Warranties of the Collateral Agent	41
Section 9.09.		Accounts	41
Section 9.10.		Waiver of Setoffs	41
Section 9.11.		Provision of Information	42
ARTICLE X	COVENANTS OF THE ISSUER		42
Section 10.01.		Preservation of Collateral	42
Section 10.02.		Opinions as to Collateral	42
Section 10.03.		Non-Interference; etc.	43
ARTICLE XI	MISCELLANEOUS		43
Section 11.01.		Amendments	43
Section 11.02.		Notices	44
Section 11.03.		Severability	45
Section 11.04.		Term of This Agreement	45
Section 11.05.		Assignments	45
Section 11.06.		Non-Petition Agreement	45
Section 11.07.		Trial by Jury Waived	46
Section 11.08.		Governing Law	46
Section 11.09.		Consents to Jurisdiction	46
Section 11.10.		Service of Process	46
Section 11.11.		Time of Essence	47

 

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TABLE OF CONTENTS

(continued)

 

				Page
Section 11.12.		Counterparts		47
Section 11.13.		Integration		47
Section 11.14.		Headings		47
Section 11.15.		Limited Recourse		47
Section 11.16.		Payments in Accordance with the Priority of Payments		47
Section 11.17.		Collateral Agent and Its Affiliates		47
Section 11.18.		Judgment Currency		48
ANNEX A	Steps Required For Delivery			Annex A-l
ANNEX B	Glossary of Certain Defined Terms			Annex B-l
ANNEX C	Specified Types			Annex C-l
SCHEDULE A	Collateral Debt Securities as of the Closing Date			Schedule A-l
SCHEDULE B	Moody’s Recovery Rate Matrix			Schedule B-l
SCHEDULE C	Fitch Recovery Rate Matrix			Schedule C-l
SCHEDULE D	S&P Recovery Rate Matrix			Schedule D-l
SCHEDULE E	Auction Procedures			Schedule E-l
SCHEDULE F	Diversity Score			Schedule F-l
SCHEDULE G	Fitch Sectors and Subsectors			Schedule G-l
SCHEDULE H	S&P Industry Classification Group			Schedule H-l
SCHEDULE I	S&P Structured Finance Sectors			Schedule I-l
SCHEDULE J	S&P Notching Criteria I			Schedule J-l
SCHEDULE K	S&P Notching Criteria II			Schedule K-l
SCHEDULE L	Moody’s Notching Criteria			Schedule L-l
SCHEDULE M	Moody’s Industry Classification Groups			Schedule M-l
SCHEDULE N	Fitch Report			Schedule N-l
SCHEDULE O	Fitch Industry Classification Groups			Schedule O-l

 

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This SECURITY AGREEMENT (as amended from time to time, this “ Agreement ”) is made as of August 21, 2003 by and among N-Star Real Estate CDO I Ltd, a company incorporated under the laws of the Cayman Islands, as issuer (the “ Issuer ”), LaSalle Bank National Association, a national banking association, as trustee under the Trust Deed (in such capacity, the “ Trustee ”), as collateral agent for and on behalf of the Secured Parties (in such capacity, the “ Collateral Agent ”) and as securities intermediary and depositary bank (in such capacity, the “ Accountholder ”).

 

RECITALS

 

1.                                        The Issuer intends to purchase for investment Collateral Debt Securities primarily consisting of CMBS Securities and REIT Debt Securities.

 

2.                                        In order to obtain funds for its purchases of the Collateral Debt Securities, the Issuer together with N-Star Real Estate CDO I Corp., a company organized under the laws of the State of Delaware (the “ Co-Issuer ”, and together with the Issuer, the “ Co-Issuers ”), intend to issue on the date hereof (a) U.S.$250,000,000 aggregate principal amount of Class A-1 Floating Rate Senior Notes Due 2038, (b) U.S.$45,000,000 aggregate principal amount of Class A-2A Floating Rate Senior Notes Due 2038, (c) U.S.$15,000,000 aggregate principal amount of Class A-2B Fixed Rate Senior Notes Due 2038, (d) U.S.$15,000,000 aggregate principal amount of Class B-1 Floating Rate Senior Subordinate Notes Due 2038, (e) U.S.$10,000,000 aggregate principal amount of Class B-2 Floating Rate Senior Subordinate Notes Due 2038, (f) U.S.$5,000,000 aggregate principal amount of Class C-lA Floating Rate Subordinate Notes Due 2038, (g) U.S.$5,000,000 aggregate principal amount of Class C-1B Fixed Rate Subordinate Notes Due 2038, (h) U.S.$24,000,000 aggregate principal amount of Class C-2 Fixed Rate Subordinate Notes Due 2038, (i) U.S.$10,000,000 aggregate principal amount of Class D-1A Floating Rate Subordinate Notes Due 2038 and (j) U.S.$4,000,000 aggregate principal amount of Class D-1B Fixed Rate Subordinate Notes Due 2038 pursuant to the Trust Deed, and the Issuer intends to issue on the date hereof 19,000 Preferred Shares pursuant to the Articles.

 

3.                                        In order to provide security for the performance by each of the Co-Issuers of all of their obligations to pay to the Secured Parties amounts payable in respect of such Notes in accordance with their terms and the terms of the Note Agency Agreement, the Trust Deed and the other Transaction Documents, the Issuer has agreed to Grant to the Collateral Agent, on behalf and for the benefit of the Secured Parties, a security interest in the Collateral in the manner set forth in this Agreement.

 

AGREEMENTS

 

In consideration of the premises and of the agreements herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the Issuer, the Trustee, the Collateral Agent and the Accountholder hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01.                                   Definitions . Capitalized terms used herein and not defined herein shall have the meanings set forth in the Glossary of Certain Defined Terms attached as Annex B hereto (the “ Glossary ”).

 

 

Section 1.02.                                   Assumptions as to Collateral Debt Securities .

 

(a)                                   In connection with all calculations required to be made pursuant to this Agreement with respect to Scheduled Distributions on any Collateral Debt Security, or any payments on any other assets included in the Collateral, and with respect to the income that can be earned on Scheduled Distributions on such Collateral Debt Securities and on any other amounts that may be received for deposit in the Collection Account, the provisions set forth in this Section 1.02 shall be applied.

 

(b)                                  All calculations by or on behalf of the Trustee or the Issuer with respect to Scheduled Distributions on the Collateral Debt Securities shall be made on the basis of information as to the terms of each such Collateral Debt Security and upon report of payments, if any, received on such Collateral Debt Security that are furnished by or on behalf of the issuer of such Collateral Debt Security and, to the extent they are not manifestly in error, such information or report may be conclusively relied upon in making such calculations.

 

(c)                                   Each Scheduled Distribution receivable with respect to a Collateral Debt Security shall be assumed to be received on the applicable Due Date, and each such Scheduled Distribution shall be assumed to be immediately deposited in the Collection Account and, except as otherwise specified, to earn interest at the Assumed Investment Rate; provided, however, that if the nominal due date for any payment on any Collateral Debt Security or Eligible Investment occurs on a day during a Due Period that is not a business day under the applicable Underlying Instrument and as a result such payment is paid and received in the following Due Period, then such payment shall be deemed to have been received during the Due Period in which such nominal due date falls if such payment is timely made in accordance with the related Underlying Instrument. All such funds shall be assumed to continue to earn interest until the date on which they are required to be available in the Collection Account for transfer to the Note Payment Account and application, in accordance with the terms hereof, of the Notes and of the Trust Deed, to payments on the Notes or other amounts payable pursuant to this Agreement.

 

(d)                                  For accounting and reporting purposes only, for each Collateral Debt Security that bears interest based on a floating rate index, all calculations involving such floating rate index for the then-current period shall be assumed to be equal to the then-current rate as had been set in accordance with the terms of the Collateral Debt Security and all calculations involving such floating rate index for future periods shall be assumed to be equal to the applicable floating rate on the relevant Measurement Date.

 

(e)                                   For purposes of calculating the Class A Interest Coverage Ratio, the Class B Interest Coverage Ratio, the Class C Interest Coverage Ratio and the Class D Interest Coverage Ratio, the expected interest income on floating rate Collateral Debt Securities and the expected interest payable on the Notes will be calculated using the then-current interest rates applicable thereto and expected interest earned on the Eligible Investments will be calculated using the then-current interest rate applicable thereto.

 

(f)                                     With respect to any Collateral Debt Security as to which any interest or other payment thereon is subject to withholding tax of any relevant jurisdiction, each Scheduled Distribution thereon shall, for purposes of the Coverage Tests, be deemed to be payable net of such withholding tax unless the issuer thereof or obligor thereon is required to make additional payments to fully compensate the Issuer for such withholding taxes (including in respect of any such additional payments). On any date of determination, the amount of any Scheduled Distribution due on any future date shall be assumed to be made net of any such uncompensated withholding tax based upon withholding tax rates in effect on such date of determination.

 

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(g)                             Unless otherwise provided herein, test calculations that evaluate to a percentage shall be rounded to the nearest ten-thousandth and test calculations that evaluate to a number or decimal will be rounded to the nearest one-hundredth.

 

Section 1.03.                              Generic Terms . The terms “hereof”, “herein” or “hereunder”, unless otherwise modified by more specific reference, shall refer to this Agreement in its entirety. Unless otherwise indicated in context, the terms “Article”, “Section”, “Appendix”, “Exhibit” or “Annex” shall refer to an Article or Section of, or Appendix, Exhibit or Annex to, this Agreement. The definition of a term shall include the singular, the plural, the past, the present, the future, the active and the passive forms of such term. The words “include”, “including” and “included” shall be illustrative and shall not imply any limitation or exclusion unless the context clearly indicates otherwise.

 

Section 1.04.                                   Times . All times referred to herein shall be to times in The City of New York, unless otherwise expressly stated herein.

 

ARTICLE II

 

THE COLLATERAL

 

Section 2.01.                                   Security Interests .

 

(a)                              Grant to the Collateral Agent on behalf and for the benefit of the Secured Parties . In order to secure the full and punctual payment, and the performance by the Issuer, of all of the Issuer’s obligations with respect to the Notes, this Agreement, the Note Agency Agreement, the Trust Deed and each Hedge Agreement and to secure the performance of all obligations of the Issuer under this Agreement and the other Transaction Documents in favor of (i) the Trustee for itself and on behalf of the Noteholders, (ii) the Collateral Advisor and (iii) each Hedge Counterparty (collectively, the “ Secured Parties ”), the Issuer hereby Grants to the Collateral Agent on behalf and for the benefit of the Secured Parties, as their respective interests may appear, subject to the provisions of this Agreement, a continuing first priority Lien on, and first priority security interest in, all of its right, title and interest in, to and under all of the assets of the Issuer, whether now owned and existing or hereafter acquired or arising and wherever located, but excluding all of the Issuer’s right, title and interest in and to (A) the Ordinary Shares Account and any amounts on deposit therein, which will equal the sum of $2,000, representing (1) the paid up share capital of the Issuer resulting from the issuance of the Ordinary Shares ($1,000) under the Articles and (2) the fee paid to the Issuer for issuing the Notes ($1,000) and (B) the Preferred Share Distribution Account and any amounts on deposit therein (all non-excluded assets being collectively referred to as the “ Collateral ”); provided that the Collateral shall include, without limitation, the following:

 

(i)                                           the Collateral Account, including all Collateral Debt Securities (listed, as of the Closing Date, in Schedule A ) which the Issuer causes to be delivered to the Collateral Agent for the benefit and on behalf of the Secured Parties (directly or through a Securities Intermediary or bailee) and all payments thereon or with respect thereto, and all Collateral Debt Securities that are delivered to the Collateral Agent in the future pursuant to the terms hereof and all payments thereon or with respect thereto;

 

(ii)                                        the Note Payment Account, the Interest Reserve Account, the Expense Reserve Account, the Hedge Termination Receipts Account, the Hedge Replacement Account and the Collection Account (collectively with the Collateral Account, the “ Accounts ”);

 

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(iii)                                     Eligible Investments purchased with funds on deposit in any Account and all funds on deposit in any Account and all income from the investments of funds in any Account;

 

(iv)                                    all Cash or Money delivered to the Collateral Agent for the benefit of the Trustee (directly or through a Securities Intermediary or bailee);

 

(v)                                       all the Issuer’s rights under each Hedge Agreement (including any collateral pledged for the benefit of the Issuer thereunder) and all payments thereunder or with respect thereto;

 

(vi)                                    all the Issuer’s rights under the Collateral Advisory Agreement and the Collateral Administration Agreement;

 

(vii)                                 all Securities, Security Entitlements, Instruments, Money and Investment Property and other property of any type or nature in which the Issuer has an interest, including any part thereof which consists of General Intangibles; and

 

(viii)                              all proceeds, accessions, profits, income, substitutions and replacements, whether voluntary or involuntary, of and to any property in which the Issuer has granted such security interest.

 

Such Grants are made, however, in trust to secure the Notes equally and ratably without prejudice, priority or distinction, except as expressly provided in this Agreement, between any Note and any other Note by reason of difference in time of issuance or otherwise, and to secure in accordance with the priorities set forth in this Agreement (i) the payment of all amounts due on the Notes in accordance with their terms, (ii) the payment of all other sums payable under this Agreement and all amounts payable to the Collateral Advisor under the Collateral Advisory Agreement and each Hedge Counterparty under a Hedge Agreement and (iii) compliance with the provisions of this Agreement, the Collateral Advisory Agreement and each Hedge Agreement, all as provided in this Agreement. The Collateral Agent, on behalf of the Secured Parties, acknowledges such Grant, accepts the trusts hereunder and agrees to perform the duties herein in accordance with the provisions hereof.

 

(b)                                  Priorities . The Issuer intends, and the Collateral Agent agrees, that the security interests in the Collateral securing the Issuer’s obligations with respect to the Notes and performance of all its obligations under this Agreement in favor of the Collateral Agent for the benefit of the Secured Parties shall rank pari passu with each other, shall be prior to all other Liens in respect of the Collateral, subject to the terms of this Agreement, and shall be subject to the Priority of Payments. The Issuer shall take all actions necessary to obtain and maintain, in favor of the Collateral Agent for the benefit of the Secured Parties, a first priority Lien on and a first priority perfected security interest in the Collateral, subject to no other Liens.

 

(c)                                   Holding of Collateral . The Collateral Agent, for the benefit and on behalf of the Secured Parties, acknowledges the Grant of the security interests under this Agreement in accordance with the provisions of this Agreement. The Collateral in the form of Securities, Security Entitlements, Instruments and Money shall be held by the Accountholder for the Collateral Agent for the benefit and on behalf of the Secured Parties pursuant to the Account Control Agreement and the Accountholder shall comply with any instruction given by the Collateral Agent. If so directed in writing by the Issuer, the Collateral Agent shall, and in any event shall cause the Accountholder to, hold, and perfect the security interest in, the Collateral. Except as provided herein, no Collateral may be withdrawn from the Accounts.

 

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(d)                                  Delivery of Portfolio Collateral . Collateral Debt Securities acquired prior to or on the Closing Date shall be delivered by, or at the direction of, the Issuer to the Collateral Agent on or before the Closing Date in accordance with Annex A hereto, and the Collateral Debt Securities which the Issuer has on or before the Closing Date committed to purchase but which will not have settled on or before the Closing Date shall be delivered by, or at the direction of, the Issuer to the Collateral Agent when acquired in accordance with Annex A hereto. The Issuer shall Grant pursuant to Section 2.01(a)  all of the Issuer’s right, title and interest in and to the Collateral Debt Securities and deliver the Collateral Debt Securities in accordance with the requirements set forth in Annex A hereto in order to perfect a first priority security interest in favor of the Collateral Agent on behalf and for the benefit of the Secured Parties. If any such Collateral Debt Securities are held through the Accountholder, delivery shall be deemed to have occurred upon receipt of evidence satisfactory to the Collateral Agent that such Collateral Debt Securities have been credited to the Collateral Account in accordance with Annex A hereto.

 

(e)                                   Financing Statements . The Issuer shall cause a UCC financing statement describing the Collateral and naming the Issuer as debtor and the Collateral Agent as secured party to be filed, by or on behalf of the Issuer, in the District of Columbia within ten (10) Business Days of the Closing Date. The Issuer shall take all actions necessary to maintain the effectiveness of such financing statement and shall notify the Collateral Agent in writing not less than thirty (30) days prior to any change in the Issuer’s name, identity, corporate structure, jurisdiction of incorporation or jurisdiction of its chief executive office. The Issuer hereby authorizes the Collateral Agent to, and the Collateral Agent shall upon receipt of an Opinion of Counsel as to the necessity of such filing, file such additional financing statement or any other financing statement, amendment, assignment or continuation statement that the Issuer shall deem necessary or advisable in connection with the security interest Granted hereunder, including, without limitation, financing statements describing the Collateral. The Issuer agrees that it will from time to time cause to be filed financing statements and continuation statements required to be made, it being understood that the Collateral Agent shall be entitled to rely upon an Opinion of Counsel as to the need to file such financing statements and continuation statements, the dates by which such filings are required to be made and the jurisdictions in which such filings are required to be made. The Issuer shall not without the written consent of the Collateral Agent (which consent shall not be unreasonably withheld or delayed) authorize the filing of any financing statements naming it as debtor other than financing statements in favor of the Collateral Agent.

 

(f)                                     Pledge Notices . Concurrently with the execution and delivery by the Issuer of the Transaction Documents, the Issuer shall deliver to each of the Accountholder, the Collateral Agent, the Trustee, each Paying Agent, each Hedge Counterparty and the Collateral Advisor, a notice in form and substance satisfactory to the Collateral Agent informing such Persons of the Collateral Agent’s charge over, and security interest in, the Hedge Agreements and all of the Issuer’s right, title and interest in, to and under the Collateral Advisory Agreement and the Collateral Administration Agreement. Each Hedge Counterparty shall, by entering into such agreement, acknowledge that the Lien of this Agreement extends to such agreement.

 

(g)                                  No Transfer of Duties . The security interests are Granted as security only and shall not (i) transfer or in any way affect or modify, or relieve the Issuer from any obligation to perform or satisfy, any term, covenant, condition or agreement to be performed or satisfied by the Issuer under or in connection with this Agreement or any other Transaction Document to which it is a party or (ii) impose any obligation on the Trustee, the Collateral Agent, the Collateral Advisor or the Accountholder to perform or observe any such term, covenant, condition or agreement or impose any liability on the Trustee, the Collateral Agent, the Collateral Advisor or the Accountholder for any act or omission on the part of the Issuer relative thereto or for any breach of any representation or warranty on the part of the Issuer contained therein or made in connection therewith.

 

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(h)                             Representative of Noteholders Only; Agent for All Other Secured Parties . With respect to the security interests created hereunder, the pledge of any item of Collateral to the Collateral Agent is made to the Collateral Agent (i) for the benefit of the Trustee as representative of the Noteholders and (ii) as agent for each of the other Secured Parties; in furtherance of the foregoing, the possession by the Collateral Agent of any item of Collateral, the endorsement to or registration in the name of the Collateral Agent of any item of Collateral (including as entitlement holder of the Collateral Account) are all undertaken by the Collateral Agent for the benefit of the Trustee as representative of the Noteholders and as agent for each of the other Secured Parties. The Collateral Agent shall have no fiduciary duties to any Hedge Counterparty or the Collateral Advisor; provided that the foregoing shall not limit any of the express obligations of the Collateral Agent under this Agreement.

 

(i)                                 The Issuer hereby agrees, and hereby undertakes to obtain the agreement of the Collateral Advisor, in the Collateral Advisory Agreement to the following:

 

(i)                                           The Collateral Advisor consents to, and agrees to perform, the provisions of this Agreement and the other Transaction Documents applicable to the Collateral Advisor.

 

(ii)                                        The Collateral Advisor acknowledges that the Issuer is assigning all of its right, title and interest in, to and under the Collateral Advisory Agreement to the Collateral Agent on behalf and for the benefit of the Secured Parties, and the Collateral Advisor agrees that all of the representations, covenants and agreements made by the Collateral Advisor in the Collateral Advisory Agreement are also for the benefit of the Secured Parties.

 

(iii)                                     Neither the Issuer nor the Collateral Advisor will enter into any agreement amending, modifying or terminating the Collateral Advisory Agreement (other than in respect of an amendment or modification of the type that may be made to this Agreement and the Trust Deed without Noteholder consent) or selecting or consenting to a successor collateral advisor, without prior written notice to the Requisite Noteholders and Rating Agency Confirmation.

 

(iv)                                    Except as otherwise set forth in the Collateral Advisory Agreement, the Collateral Advisor shall continue to serve as Collateral Advisor under the Collateral Advisory Agreement notwithstanding that the Collateral Advisor shall not have received amounts due it under the Collateral Advisory Agreement because sufficient funds were not then available to pay such amounts and the Collateral Advisor agrees not to cause the filing of a petition in bankruptcy against the Issuer for the non-payment to the Collateral Advisor until the later of (A) payment in full of all Notes issued under the Trust Deed and the payment of the amounts, if any, to the Preferred Share Fiscal and Paying Agent for payment of dividends and other distributions on the Preferred Shares pursuant to the Preferred Share Documents, in accordance with the Priority of Payments plus ten (10) days following such payment, and (B) the expiration of a period equal to the applicable preference period under any applicable bankruptcy law; provided that nothing in this clause (B)  shall preclude, or be deemed to estop, the Collateral Advisor (1) from taking any action prior to the expiration of the ten (10) days following such payment or, if longer, the applicable preference period then in effect, in (x) any case or proceeding voluntarily filed or commenced by the Issuer or the Co-Issuer, as the case may be, or (y) any involuntary insolvency proceeding filed or commenced against the Issuer or the Co-Issuer, as the case may be, by a Person other than the Collateral Advisor or (2) from commencing against the Issuer or the Co-Issuer or any properties of the Issuer or the Co-Issuer any legal action that is not a bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation proceeding; and provided, further, that the obligations of the Issuer hereunder shall be payable solely from the Collateral in accordance with the Priority of Payments.

 

(j)                                 Collateral Agent as Attorney-In-Fact . Without imposing any obligations on the Collateral Agent with respect thereto (other than as set forth in this Agreement), the Issuer hereby

 

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appoints the Collateral Agent as its attorney-in-fact for the specific purpose of filing any financing statements and continuation statements with respect to the security interests provided for herein.

 

Section 2.02.                                   Creation of Security Interest; Transfer of Control . The Issuer hereby agrees to (a) create in each item of Collateral in favor of the Collateral Agent on behalf and for the benefit of the Secured Parties a first priority Lien on the Collateral Granted pursuant to Section 2.01(a)  and (b)  give Control over each item of the Collateral constituting a Financial Asset to the Collateral Agent. The obligation in the preceding sentence shall be an obligation of the Issuer and not an obligation of the Collateral Agent or the Accountholder. All procedures regarding the transfer, relinquishment or maintenance of Control by the Collateral Agent over the Collateral shall be governed by the Account Control Agreement and Annex A hereto. The parties hereto agree that, following the occurrence of any Event of Default, the Trustee shall be entitled to give all instructions to the Collateral Agent on behalf of the Secured Parties as described in Section 9.01 .

 

Section 2.03.                                   Termination of Security Interests . On the Final Termination Date, the security interests and the rights, remedies, powers, duties, authority and obligations conferred upon the Collateral Agent for the benefit and on behalf of the Secured Parties and the Accountholder pursuant to this Agreement shall terminate and be of no further force and effect and all rights, remedies, powers, duties, authority and obligations of each of the Collateral Agent, the Accountholder and the Trustee with respect to the Collateral shall be automatically released in favor of the Issuer; provided, however, that each of the Collateral Agent, the Accountholder and the Trustee, if requested in writing by the Issuer, shall execute and deliver such instruments of release in favor of the Issuer as the Issuer may reasonably request to effectuate such release, and any such instruments so executed and delivered shall be fully binding on each of the Trustee, the Collateral Agent and the Accountholder.

 

Section 2.04.                                   Priority of Payments . All amounts received in respect of the Collateral (whether by payments or by sale or other disposition) that are available for distribution shall be distributed in accordance with the Priority of Payments set forth herein.

 

Section 2.05.                                   Representations Regarding Collateral . The Issuer, as of the date hereof (and, as of the date of each acquisition of any Collateral), represents and warrants to the following:

 

(a)                                   This Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in the Collateral in favor of the Collateral Agent on behalf and for the benefit of the Secured Parties, which security interest is prior to all other Liens and security interests, and is enforceable as such as against creditors of and purchasers from the Issuer and, upon delivery of the Collateral Debt Securities in accordance with the requirements set forth in Annex A hereto and filing of the appropriate financing statements in the appropriate filing offices, the Lien and security interest created by this Agreement shall be a perfected first priority security interest in favor of the Collateral Agent for the benefit of the Secured Parties.

 

(b)                                  The Issuer owns and has good and marketable title to the Collateral free and clear of any Liens, claims, encumbrances or defects of any nature whatsoever except for those which are being released on the Closing Date or on the date of purchase by the Issuer or those created pursuant to or contemplated under this Agreement and encumbrances arising from due bills, if any, with respect to interest, or a portion thereof, accrued on any Collateral Debt Security prior to the first payment date and owed by the Issuer to the seller of such Collateral Debt Security.

 

(c)                                   The Issuer has acquired its ownership in each such Collateral Debt Security, or will acquire in the case of any Collateral Debt Securities which the Issuer has on or before the Closing

 

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Date committed to purchase but which will not have settled on or before the Closing Date, in good faith without notice of any adverse claim, except as described in paragraph (b) above.

 

(d)                                  The Issuer (i) has delivered each such Collateral Debt Security, or will deliver any Collateral Debt Securities which the Issuer has on or before the Closing Date committed to purchase but which will not have settled on or before the Closing Date, to the Collateral Agent in accordance with Annex A hereto and (ii) has not assigned, pledged, sold, granted a security interest in or otherwise encumbered any interest in such Collateral Debt Security other than interests Granted pursuant to this Agreement;

 

(e)                                   The Issuer has full right to Grant all security interests Granted herein.

 

(f)                                  All Collateral is comprised of either “securities”, “instruments”, “tangible chattel paper”, “accounts”, “security entitlements” or “general intangibles”, in each case as defined in the applicable UCC.

 

(g)                               Each of the Accounts, and all subaccounts thereof, constitute Securities Accounts.

 

(h)                                  All items of the Collateral that constitute Security Entitlements have been and will have been credited to one of the Securities Accounts. The securities intermediary for each of the Accounts has agreed to treat all assets credited to the Securities Accounts as financial assets under the applicable UCC.

 

(i)                                      Other than the security interest Granted to the Collateral Agent on behalf and for the benefit of the Secured Parties pursuant to this Agreement, the Issuer has not pledged, assigned, sold, granted a security interest in or otherwise conveyed any of the Collateral. The Issuer has not authorized the filing of and is not aware of any financing statements against the Issuer that include a description of collateral covering the Collateral other than any financing statement relating to the security interest Granted to the Collateral Agent on behalf and for the benefit of the Secured Parties hereunder or that has been terminated. The Issuer is not aware of any judgment, Pension Benefit Guarantee Corp. lien or tax lien filings against it.

 

(j)                                      The Issuer has caused or will have caused, within ten (10) days of the Closing Date, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Collateral Granted to the Collateral Agent on behalf and for the benefit of the Secured Parties hereunder that constitutes chattel paper, instruments, accounts, securities entitlements or general intangibles under the applicable UCC, if any.

 

(k)                                   The Collateral Agent or the Accountholder has in its possession all original copies of the instruments that constitute or evidence the Collateral, if any. The instruments, loan agreements and leases that constitute or evidence the Collateral do not have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Collateral Agent on behalf and for the benefit of the Secured Parties. All financing statements filed or to be filed against the Issuer in favor of the Collateral Agent on behalf and for the benefit of the Secured Parties in connection herewith describing the Collateral contain a statement to the following effect: “A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Collateral Agent on behalf and for the benefit of (A) the Trustee, for the benefit of the Noteholders, (B) the Collateral Advisor and (C) each Hedge Counterparty.”

 

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ARTICLE IV

 

ACCOUNTS, ACCOUNTINGS AND RELEASES

 

Section 4.01.                              Collection of Money . The Accounts established by the Collateral Agent pursuant to Section 8.01 and this Article IV may include any number of sub-accounts requested by the Collateral Advisor for convenience in administering Collateral Debt Securities. In addition, all Cash deposited in the Accounts established pursuant to this Article IV shall be invested in Eligible Investments in accordance with the procedures set forth in this Article IV and any restrictions applicable to such Accounts.

 

Section 4.02.                              Collection Account .

 

(a)                              The Collateral Agent shall, prior to the Closing Date, establish a single, segregated trust account in the United States which shall be designated as the “ Collection Account ”, which shall be held in the name of the Collateral Agent for the benefit and on behalf of the Secured Parties and over which the Collateral Agent shall have exclusive Control and the sole right of withdrawal, into which the Collateral Agent shall from time to time deposit, in addition to the deposits required pursuant to Sections 4.03(d)  and 4.04(d) , (i) all distributions on the Collateral Debt Securities and (ii) all proceeds received from the disposition of any Collateral Debt Securities (unless simultaneously reinvested in Eligible Investments) and (iii) all Collections. Funds in the Collection Account shall not be commingled with any other Money. The Collateral Agent shall give to the Issuer, the Collateral Advisor and the Trustee prompt notice if the Collection Account or any funds on deposit therein, or otherwise to the credit thereof, shall become subject to any writ, order, judgment, warranty of attachment, execution or similar process. The Issuer shall not have any legal, equitable or beneficial interest in the Collection Account other than in accordance with the Priority of Payments. In addition, (x) the Issuer may, but under no circumstances shall be required to, deposit or cause to be deposited from time to time such Moneys in the Collection Account as it deems, in its sole discretion, to be advisable and by notice to the Collateral Agent and (y) the Collateral Advisor may designate such Money to be treated as Collateral Principal Collections or Collateral Interest Collections hereunder at its discretion. All Money deposited from time to time in the Collection Account pursuant to this Agreement shall be held by the Collateral Agent as part of the Collateral and shall be applied in accordance with the terms hereof and to the purposes herein provided. The Collection Account shall remain at all times with a financial institution having a long-term debt rating of at least “BBB+” by S&P, at least “Baal” by Moody’s and, at least “BBB+” by Fitch and a short-term debt rating of at least “A-1” by S&P, at least “P-1” by Moody’s and, at least “F-1” by Fitch.

 

(b)                             All Distributions, any deposit required pursuant to Section 4.02(c)  and any net proceeds from the sale or disposition of a Collateral Debt Security received by the Collateral Agent shall be immediately deposited into the Collection Account. All such property, together with any securities in which funds included in such property are or will be invested or reinvested during the term of this Agreement, and any income or other gain realized from such investments, shall be held by the Collateral Agent in the Collection Account as part of the Collateral subject to disbursement and withdrawal as provided in this Section 4.02 . By Issuer Order (which may be in the form of standing instructions), the Issuer (or the Collateral Advisor on behalf of the Issuer) may at any time direct the Collateral Agent to, and upon receipt of such Issuer Order the Collateral Agent shall, invest all funds received into the Collection Account during a Due Period, and amounts received in prior Due Periods and retained in the Collection Account, as so directed in Eligible Investments maturing no later than the Business Day immediately preceding the next Payment Date. The Collateral Agent shall, within one (1) Business Day after receipt of any Distribution or other proceeds which is not Cash, so notify the Issuer and the Issuer (or the Collateral Advisor on behalf of the Issuer) shall, within thirty (30) Business Days after receipt of

 

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such notice from the Collateral Agent, sell such Distribution or other proceeds for Cash in an arm’s-length transaction to a Person which is not an Affiliate (other than a Permitted Affiliate, subject to the Investment Advisers Act) of the Issuer or the Collateral Advisor and deposit the proceeds thereof in the Collection Account for investment pursuant to this Section 4.02 ; provided, however, that the Issuer (or the Collateral Advisor on behalf of the Issuer) need not sell such Distributions or other proceeds if it delivers an Officer’s certificate to the Collateral Agent certifying that such Distributions or other proceeds constitute Collateral Debt Securities or Eligible Investments.

 

(c)                              If, prior to the occurrence of an Event of Default, the Issuer shall not have given any investment directions pursuant to Section 4.02(b) , the Collateral Agent shall seek instructions from the Collateral Advisor within three (3) Business Days after transfer of such funds to the Collection Account. If the Collateral Agent does not thereupon receive written instructions from the Issuer (or the Collateral Advisor on behalf of the Issuer) within thirty (30) Business Days after transfer of such funds to the Collection Account, it shall invest and reinvest the funds held in the Collection Account, as fully as practicable, but only in one or more Eligible Investments described in clause (iii) of the definition of Eligible Investments of its selection maturing no later than the Business Day immediately preceding the next Payment Date. If, after the occurrence of an Event of Default, the Issuer shall not have given investment directions to the Collateral Agent pursuant to Section 4.02(b)  for three (3) consecutive days, the Collateral Agent shall invest and reinvest such Money as fully as practicable in Eligible Investments as described in clause (iii) of the definition of Eligible Investments of its selection maturing not later than the Business Day immediately preceding the next Payment Date. All interest and other income from such investments shall be deposited in the Collection Account, any gain realized from such investments shall be credited to the Collection Account and any loss resulting from such investments shall be charged to the Collection Account. The Collateral Agent shall not in any way be held liable by reason of any insufficiency of such Collection Account resulting from any loss relating to any such Eligible Investment, except with respect to investments in obligations of the Collateral Agent or any Affiliate thereof.

 

(d)                             Collateral Principal Collections and Sale Proceeds shall be used to redeem the Notes in accordance with the Priority of Payments in an amount equal to the lesser of (i) the Collateral Principal Collections and (ii) the amount of Available Funds remaining in the Collection Account.

 

Section 4.03.                              Interest Reserve Account .

 

(a)                         The Collateral Agent shall, prior to the Closing Date, establish a single, segregated trust account which shall be designated as the “ Interest Reserve Account ”, which shall be held in the name of the Collateral Agent for the benefit and on behalf of the Secured Parties and over which the Collateral Agent shall have exclusive Control and the sole right of withdrawal, into which the Collateral Agent shall deposit on each Payment Date, the Interest Reserve Amount, if any, in accordance with Section 5.01(a)(vii) . Funds in the Interest Reserve Account shall not be commingled with any other Money. The Collateral Agent shall give to the Issuer, the Collateral Advisor and the Trustee prompt notice if the Interest Reserve Account or any funds on deposit therein, or otherwise to the credit of the Interest Reserve Account, shall become subject to any writ, order, judgment, warranty of attachment, execution or similar process. All Money deposited from time to time in the Interest Reserve Account pursuant to this Agreement shall be held by the Collateral Agent as part of the Collateral and shall be applied in accordance with the terms hereof and to the purposes herein provided. The Issuer shall not have any legal, equitable or beneficial interest in the Interest Reserve Account other than in accordance with the Priority of Payments. The Interest Reserve Account shall remain at all times with a financial institution having a long-term debt rating of at least “BBB+” by S&P, at least “Baa1” by Moody’s and, at least “BBB+” by Fitch and a short-term debt rating of at least “A-1” by S&P, at least “P-1” by Moody’s and, at least “F-1” by Fitch.

 

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(b)                             Any deposit required pursuant to Section 4.03(c)  shall be immediately deposited into the Interest Reserve Account. All such property, together with any securities in which funds included in such property are or will be invested or reinvested during the term of this Agreement, and any income or other gain realized from such investments, shall be held by the Collateral Agent in the Interest Reserve Account as part of the Collateral subject to disbursement and withdrawal as provided in this Section 4.03 . By Issuer Order (which may be in the form of standing instructions), the Issuer (or the Collateral Advisor on behalf of the Issuer) may at any time direct the Collateral Agent to, and upon receipt of such Issuer Order the Collateral Agent shall, invest all funds received into the Interest Reserve Account during a Due Period, and amounts received in prior Due Periods and retained in the Interest Reserve Account, as so directed in Eligible Investments maturing no later than the Business Day immediately preceding the next Payment Date. The Collateral Agent shall, within one (1) Business Day after receipt of any Distribution or other proceeds which is not Cash, so notify the Issuer and the Issuer (or the Collateral Advisor on behalf of the Issuer) shall, within thirty (30) Business Days after receipt of such notice from the Collateral Agent, sell such Distribution or other proceeds for Cash in an arm’s-length transaction to a Person which is not an Affiliate (other than a Permitted Affiliate, subject to the Investment Advisers Act) of the Issuer or the Collateral Advisor and deposit the proceeds thereof in the Interest Reserve Account for investment pursuant to this Section 4.03 ; provided, however, that the Issuer (or the Collateral Advisor on behalf of the Issuer) need not sell such Distributions or other proceeds if it delivers an Officer’s certificate to the Collateral Agent certifying that such Distributions or other proceeds constitute Collateral Debt Securities or Eligible Investments.

 

(c)                              If, prior to the occurrence of an Event of Default, the Issuer (or the Collateral Advisor on behalf of the Issuer) shall not have given any investment directions pursuant to Section 4.03(b) , the Collateral Agent shall seek instructions from the Collateral Advisor within three (3) Business Days after transfer of such funds to the Interest Reserve Account. If the Collateral Agent does not thereupon receive written instructions from the Issuer (or the Collateral Advisor on behalf of the Issuer) within thirty (30) Business Days after transfer of such funds to the Interest Reserve Account, it shall invest and reinvest the funds held in the Interest Reserve Account, as fully as practicable, but only in one or more Eligible Investments in clause (iii) of the definition of Eligible Investments of its selection maturing no later than the Business Day immediately preceding the next Payment Date. If, after the occurrence of an Event of Default, the Issuer (or the Collateral Advisor on behalf of the Issuer) shall not have given investment directions to the Collateral Agent pursuant to Section 4.03(b)  for three (3) consecutive days, the Collateral Agent shall invest and reinvest such Money as fully as practicable in Eligible Investments as described in clause (iii) of the definition of Eligible Investments of its selection maturing not later than the Business Day immediately preceding the next Payment Date. All interest and other income from such investments shall be deposited in the Interest Reserve Account, any gain realized from such investments shall be credited to the Interest Reserve Account and any loss resulting from such investments shall be charged to the Interest Reserve Account. The Collateral Agent shall not in any way be held liable by reason of any insufficiency of such Interest Reserve Account resulting from any loss relating to any such Eligible Investment, except with respect to investments in obligations of the Collateral Agent or any Affiliate thereof.

 

(d)                             On the Business Day prior to each Payment Date, the Collateral Agent shall deposit into the Collection Account the balance of the Interest Reserve Account (including reinvestment income) for distribution in accordance with the Priority of Payments on the related Payment Date.

 

Section 4.04.                              Expense Reserve Account .

 

(a)                              The Collateral Agent shall, prior to the Closing Date, establish a single, segregated trust account which shall be designated as the “ Expense Reserve Account ”, which shall be held in the name of the Collateral Agent for the benefit and on behalf of the Secured Parties and over

 

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which the Collateral Agent shall have exclusive Control and the sole right of withdrawal, into which the Collateral Agent shall deposit, on the Closing Date, an amount equal to U.S.$25,000 and, on each Payment Date, an amount in accordance with Section 5.01(a)(i) . Funds in the Expense Reserve Account shall not be commingled with any other Money. The Collateral Agent shall give to the Issuer, the Collateral Advisor and the Trustee prompt notice if the Expense Reserve Account or any funds on deposit therein, or otherwise to the credit of the Expense Reserve Account, shall become subject to any writ, order, judgment, warranty of attachment, execution or similar process. All Money deposited from time to time in the Expense Reserve Account pursuant to this Agreement shall be held by the Collateral Agent as part of the Collateral and shall be applied in accordance with the terms hereof and to the purposes herein provided. The Issuer shall not have any legal, equitable or beneficial interest in the Expense Reserve Account other than in accordance with this Agreement. The Expense Reserve Account shall remain at all times with a financial institution having a long-term debt rating of at least “BBB+” by S&P, at least “Baal” by Moody’s and, at least “BBB+” by Fitch and a short-term debt rating of at least “A-1” by S&P, at least “P-1” by Moody’s and, at least “F-1” by Fitch.

 

(b)                             Any deposit required pursuant to Section 4.04(c)  shall be immediately deposited into the Expense Reserve Account. All such property, together with any securities in which funds included in such property are or will be invested or reinvested during the term of this Agreement, and any income or other gain realized from such investments, shall be held by the Collateral Agent in the Expense Reserve Account as part of the Collateral subject to disbursement and withdrawal as provided in this Section 4.04 . By Issuer Order (which may be in the form of standing instructions), the Issuer (or the Collateral Advisor on behalf of the Issuer) may at any time direct the Collateral Agent to, and upon receipt of such Issuer Order the Collateral Agent shall, invest all funds received into the Expense Reserve Account during a Due Period, and amounts received in prior Due Periods and retained in the Expense Reserve Account, as so directed in Eligible Investments maturing not later than the second (2 nd ) Business Day immediately preceding the next Payment Date unless such Eligible Investments are investments of the type described in clause (i) or (iii) of the definition of “Eligible Investments”, in which event such Eligible Investments may mature on the Business Day immediately preceding such Payment Date. The Collateral Agent shall, within one (1) Business Day after receipt of any Distribution or other proceeds which is not Cash, so notify the Issuer and the Issuer (or the Collateral Advisor on behalf of the Issuer) shall, within thirty (30) Business Days after receipt of such notice from the Collateral Agent, sell such Distribution or other proceeds for Cash in an arm’s-length transaction to a Person that is not an Affiliate (other than a Permitted Affiliate, subject to the Investment Advisers Act) of the Issuer or the Collateral Advisor and deposit the proceeds thereof in the Expense Reserve Account for investment pursuant to this Section 4.04 ; provided, however, that the Issuer (or the Collateral Advisor on behalf of the Issuer) need not sell such Distributions or other proceeds if it delivers an Officer’s certificate to the Collateral Agent certifying that such Distributions or other proceeds constitute Collateral Debt Securities or Eligible Investments.

 

(c)                              If, prior to the occurrence of an Event of Default, the Issuer shall not have given any investment directions pursuant to Section 4.04(b) , the Collateral Agent shall seek instructions from the Collateral Advisor within three (3) Business Days after transfer of such funds to the Expense Reserve Account. If the Collateral Agent does not thereupon receive written instructions from the Issuer (or the Collateral Advisor on behalf of the Issuer) within thirty (30) Business Days after transfer of such funds to the Expense Reserve Account, it shall invest and reinvest the funds held in the Expense Reserve Account, as fully as practicable, but only in Eligible Investments of the type described in clause (iii) of the defmition of “Eligible Investments”, maturing the Business Day immediately preceding such Payment Date. If, after the occurrence of an Event of Default, the Issuer shall not have given investment directions to the Collateral Agent pursuant to Section 4.04(b)  for three (3) consecutive days, the Collateral Agent shall invest and reinvest such Money as fully as practicable, but only in Eligible Investments of its selection of the type described in clause (iii) of the definition of “Eligible Investments”, maturing on the

 

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Business Day immediately preceding such Payment Date. All interest and other income from such investments shall be deposited in the Expense Reserve Account, any gain realized from such investments shall be credited to the Expense Reserve Account and any loss resulting from such investments shall be charged to the Expense Reserve Account. The Collateral Agent shall not in any way be held liable by reason of any insufficiency of such Expense Reserve Account resulting from any loss relating to any such Eligible Investment, except with respect to investments in obligations of the Collateral Agent or any Affiliate thereof.

 

(d)                        On the Business Day prior to each Payment Date, the Collateral Agent shall deposit into the Collection Account the balance of the Expense Reserve Account (including reinvestment income) for distribution in accordance with the Priority of Payments on the related Payment Date.

 

(e)                         The Collateral Agent may, from time to time and at any time, withdraw amounts from the Expense Reserve Account to pay accrued and unpaid administrative expenses of the Co-Issuers. All amounts remaining on deposit in the Expense Reserve Account at the time when substantially all of the Issuer’s assets have been sold or otherwise disposed of will be deposited by the Collateral Agent into the Collection Account (including reinvestment income) as Collateral Interest Collections for distribution in accordance with the Priority of Payments on the immediately succeeding Payment Date.

 

Section 4.05.                              Collateral Account . The Collateral Agent shall, prior to the Closing Date, establish a single, segregated trust account (or a subaccount of the Collection Account) which shall be designated as the “ Collateral Account ”, which shall be held in the name of the Collateral Agent for the benefit and on behalf of the Secured Parties and over which the Collateral Agent shall have exclusive Control and the sole right of withdrawal. Any and all assets or securities at any time on deposit in, or otherwise to the credit of, the Collateral Account shall be held in trust by the Collateral Agent for the benefit and on behalf of the Secured Parties. The only permitted withdrawals from the Collateral Account shall be in accordance with this Agreement. The Collateral Agent agrees to give the Issuer and the Trustee prompt notice if the Collateral Account or any funds on deposit therein, or otherwise to the credit of the Collateral Account, shall become subject to any writ, order, judgment, warrant of attachment, execution or similar process. The Issuer shall not have any legal, equitable or beneficial interest in the Collateral Account other than in accordance with this Agreement. The Collateral Account shall remain at all times with a financial institution located in the United States having a long-term debt rating of at least “BBB+” by S&P, at least “Baal” by Moody’s and at least “BBB+” by Fitch and a short-term debt rating of at least “A-1” by S&P, at least “P-1” by Moody’s and, at least “F-1” by Fitch.

 

Section 4.06.                              Reports by Collateral Agent . The Collateral Agent shall supply, in a timely fashion, to the Co-Issuers, the Trustee, each Hedge Counterparty, the Principal Note Paying Agent, the Preferred Share Fiscal and Paying Agent, each Rating Agency (so long as any Notes are rated by such Rating Agency), the Initial Purchasers and the Collateral Advisor any information regularly maintained by the Collateral Agent that each such party may from time to time request with respect to the Collateral Debt Securities, any Hedge Agreement, the Collection Account and the Collateral Account and such other information as is regularly maintained by the Collateral Agent and is reasonably needed to verify information contained in the Note Valuation Report. Additionally, the Collateral Agent shall promptly provide any other information reasonably available to the Collateral Agent by reason of its acting as Collateral Agent hereunder and required to be provided by Section 4.07 or to permit the Collateral Advisor to perform its obligations under the Collateral Advisory Agreement. The Collateral Agent shall forward to the Collateral Advisor copies of all notices and other writings received by it from the issuer of any Collateral Debt Security or from any Clearing Agency with respect to any Collateral Debt Security advising the holders of such security of any rights that the holders might have with respect thereto (including, without limitation, notices of calls and redemptions of securities) as well as all periodic financial reports received from such issuer and Clearing Agencies with respect to such issuer. The

 

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Collateral Agent shall also cause the amount of interest paid on the Notes on each Payment Date to be communicated to Euroclear, Clearstream and the Irish Stock Exchange (as long as any of the Notes are listed thereon) on or prior to such Payment Date.

 

Section 4.07.                              Accountings .

 

(a)                              Payment Date Accounting; Note Valuation Reports . The Collateral Agent on behalf of the Issuer shall prepare or cause to be prepared an accounting (the “ Note Valuation Report ”), determined as of each Determination Date, and make available or cause to be made available on its website, initially located at www.cdotrustee.net and deliver by e-mail to S&P and otherwise upon request, the Note Valuation Report, after the reconciliation process described in this Section 4.07(a) , to the Collateral Advisor, the Trustee, the Principal Note Paying Agent, the Preferred Share Fiscal and Paying Agent, each Hedge Counterparty, if any, each Rating Agency (so long as any Notes are rated by such Rating Agency), the Initial Purchasers and the Depositary (accompanied by a request that it be transmitted to the Holders of Notes on the books of the Depositary) by no later than the close of business on the Business Day preceding the related Payment Date. The Collateral Advisor shall provide any information reasonably requested by the Issuer or on the Issuer’s behalf for preparation of the Note Valuation Report in accordance with this Section 4.07(a) . Upon receipt of each Note Valuation Report, the Trustee, in the name and at the expense of the Co-Issuers, shall notify the Irish Paying Agent, so long as any Notes are listed thereon, of the aggregate principal amount of the Notes of each Class after giving effect to the principal payments, if any, on the next Payment Date. The Note Valuation Report shall contain the following information:

 

(i)                                 a calculation in reasonable detail necessary to determine compliance with each of the Coverage Tests;

 

(ii)                              the estimated remaining average life (on each asset and on an aggregate basis) of all Collateral Debt Securities;

 

(iii)                           the Applicable Periodic Interest Rate in respect of each Class of Notes and the amount of Periodic Interest payable to the Holders of the Notes for such Payment Date (in the aggregate and by Class);

 

(iv)                          the amount (if any) payable to each Hedge Counterparty pursuant to the related Hedge Agreement;

 

(v)                             the amount (if any) payable by each Hedge Counterparty pursuant to the related Hedge Agreement;

 

(vi)                          the Aggregate Fees and Expenses payable on the next Payment Date on an itemized basis;

 

(vii)                       the Aggregate Fees and Expenses paid during a period of twelve (12) months ending on the next Payment Date on an itemized basis;

 

(viii)                    for the Collection Account:

 

(A)                     the Balance on deposit in the Collection Account at the end of the related Due Period;

 

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(B)                       the amounts payable from the Collection Account pursuant to each priority in the Priority of Payments on the next Payment Date; and

 

(C)                       the Balance remaining in the Collection Account immediately after all payments and deposits to be made on such Payment Date;

 

(ix)                                      for the Interest Reserve Account:

 

(A)                     the Balance on deposit in the Interest Reserve Account at the end of the related Due Period;

 

(B)                       the amount payable from the Interest Reserve Account pursuant to the Priority of Payments on the next Payment Date;

 

(C)                       the Interest Reserve Amount to be paid into the Interest Reserve Account on the next Payment Date; and

 

(D)                      the Balance remaining in the Interest Reserve Account immediately after all payments and deposits to be made on such Payment Date;

 

(x)                                              for the Expense Reserve Account,

 

(A)                     the amount to be paid into the Expense Reserve Account on the next Payment Date; and

 

(B)                       the Balance remaining in the Expense Reserve Account immediately after all payments and deposits to be made on such Payment Date;

 

(xi)                                           the Hedge Receipt Amount or the Hedge Payment Amount for the related Payment Date, and for each Hedge Agreement, the outstanding notional amount of such Hedge Agreement and the amounts, if any, scheduled to be received or paid, as the case may be, by the Issuer pursuant to such Hedge Agreement for the related Payment Date, separately stating the portion payable under the Priority of Payments;

 

(xii)                                        the amount of Excess Funds to be paid to the Holders of the Preferred Shares on the related Payment Date;

 

(xiii)                                     the amount of the Senior Collateral Advisory Fee and the amount of the Subordinate Collateral Advisory Fee;

 

(xiv)                                 the amount of the Deferred Subordinate Collateral Advisory Fee (including the amounts of the Monitoring Fee and the Senior Structuring Fee);

 

(xv)                                       any information required to be included in a Monthly Report as set forth in Section 4.07(b) ;

 

(xvi)                                    such other information as the Collateral Advisor, the Initial Purchasers, the Trustee, S&P, Moody’s or any Hedge Counterparty may reasonably request; and

 

(xvii)                                 the aggregate principal amount of the Collateral Debt Securities and, with respect to each Collateral Debt Security, the Principal Balance, the annual coupon rate or spread to the relevant floating rate index, the frequency of coupon payments, the amount of principal payments

 

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received, the maturity date, the Weighted Average Life, the issuer, the country in which the issuer is incorporated or organized, the Weighted Average Fixed Rate Coupon, the Weighted Average Spread, the Moody’s Industry Classification Weighted Average Group, the S&P Industry Classification Group, the Fitch Industry Classification Group, the S&P Recovery Rate for each Class of Notes, the Fitch Sector Score, the Moody’s Recovery Rate, the Moody’s Diversity Score, the Moody’s Weighted Average Recovery Rate, the Fitch Weighted Average Recovery Rate for each class of Notes, the Fitch Weighted Average Rating Factor, the Weighted Average Moody’s Rating Factor, the Moody’s Rating, the S&P Rating and the Fitch Rating of such Collateral Debt Security (provided that if any Moody’s Rating, S&P Rating or Fitch Rating for any Collateral Debt Security is set forth in any Note Valuation Report and such rating is an “estimated” or “shadow” rating, such rating shall be identified as “estimated” or “shadow rated”, shall be disclosed with an asterisk in the place of the applicable estimated or shadow rating and shall include the date as of which such rating was first provided by Moody’s, S&P or Fitch, as the case may be, to the Issuer).

 

Upon receipt of each Note Valuation Report, the Trustee and the Collateral Advisor shall compare the information contained therein to the information contained in their respective records with respect to the Collateral and shall, within two (2) Business Days after receipt of such Note Valuation Report, notify each of the Issuer, each Hedge Counterparty, the Collateral Advisor, the Trustee, Moody’s and S&P if the information contained in the Note Valuation Report does not conform to the information maintained by the Trustee or the Collateral Advisor as applicable, with respect to the Collateral, and detail any discrepancies. In the event that any discrepancy exists, the Trustee and the Issuer, or the Collateral Advisor shall attempt to promptly resolve the discrepancy. If such discrepancy cannot be promptly resolved, the Trustee shall within five (5) Business Days after discovery of such discrepancy cause the Independent Accountants of national reputation to review such Note Valuation Report and the Trustee’s and the Collateral Advisor’s records to determine the cause of such discrepancy. If such review reveals an error in the Note Valuation Report or the Trustee’s or the Collateral Advisor’s records, the Note Valuation Report or Trustee’s and the Collateral Advisor’s records, as the case may be, shall be revised accordingly and, as so revised, shall be utilized in making further calculations.

 

(b)                                  Monthly Report . Not later than the fifth (5 th ) Business Day after the last Business Day of each month (excluding the months in which a Payment Date occurs), commencing in October, 2003, the Issuer shall compile and make available, or cause to be compiled and made available on the Trustee’s website initially located at www.cdotrurstee.net and to be delivered by e-mail to S&P and otherwise upon request, to the Trustee, each Hedge Counterparty, the Collateral Advisor, the Preferred Share Fiscal and Paying Agent, the Initial Purchasers and each Rating Agency (so long as any Notes are rated by such Rating Agency), and, upon written request, accompanied by a note owner certificate, to any Holder of a Note, a monthly report (the “ Monthly Report ”), which shall contain the following information and instructions with respect to the Collateral Debt Securities (individually and collectively), determined as of the last Business Day of such month:

 

(i)                            the aggregate principal amount of the Collateral Debt Securities and, with respect to each Collateral Debt Security, the Principal Balance, the annual coupon rate or spread to the relevant floating rate index, the frequency of coupon payments, the amount of principal payments received, the maturity date, the Weighted Average Life, the issuer, the country in which the issuer is incorporated or organized, the Weighted Average Fixed Rate Coupon, the Weighted Average Spread, the Moody’s Industry Classification Group, the S&P Industry Classification Group, the Fitch Industry Classification Group, the S&P Recovery Rate, the Fitch Sector Score, the Moody’s Recovery Rate, the S&P Weighted Average Recovery Rate for each Class of Notes, the Moody’s Weighted Average Recovery Rate, the Fitch Weighted Average Recovery Rate, the Fitch Weighted Average Rating Factor, the Weighted Average Moody’s Rating Factor, the Moody’s Rating, the S&P Rating and the Fitch Rating of such Collateral Debt Security (provided that if any Moody’s Rating, S&P Rating or Fitch Rating for

 

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any Collateral Debt Security is set forth in any Monthly Report and such rating is an “estimated” or “shadow” rating, such rating shall be identified as “estimated” or “shadow rated”, shall be disclosed with an asterisk in the place of the applicable estimated or shadow rating and shall include the date as of which such rating was first provided by Moody’s, S&P or Fitch, as the case may be, to the Issuer);

 

(ii)                         the Principal Balance, the annual interest rate, the maturity date, the Moody’s Rating, the S&P Rating, the Fitch Rating and the issuer of each Eligible Investment included in the Collateral;

 

(iii)                      the nature, source and amount of any Collections in the Collection Account, including Collections received since the date of the later of the last Monthly Report and the last Note Valuation Report;

 

(iv)                     the Principal Balance and identity of each Collateral Debt Security that was released for sale indicating the reason for such sale;

 

(v)                        the identity and Principal Balance of each Collateral Debt Security that became a Defaulted Security, an Equity Security, a Written Down Security, a Withholding Tax Security, a Deferred Interest PIK Bond or, except with respect to Defaulted Securities, a Collateral Debt Security whose Moody’s Rating has been reduced below “Ba3” since the later to occur of the last Monthly Report and the last Note Valuation Report, and the identity and Principal Balance of each Collateral Debt Security that was a Defaulted Security, an Equity Security, a Written Down Security, a Withholding Tax Security or a Deferred Interest PIK Bond or, except with respect to Defaulted Securities, a Collateral Debt Security whose Moody’s Rating was below “Ba3” as of the last Monthly Report or the last Note Valuation Report and that remains a Defaulted Security, an Equity Security, a Written Down Security, a Deferred Interest PIK Bond or a Collateral Debt Security (other than a Defaulted Security) with a Moody’s Rating below “Ba3” and the Market Value of each Defaulted Security;

 

(vi)                     the purchase price of each Pledged Security Granted and the sale price of each Pledged Security subject to a sale since the date of the later of the last Monthly Report and the last Note Valuation Report; and whether such Pledged Security is a Collateral Debt Security, an Eligible Investment or proceeds in the Collection Account;

 

(vii)                  the calculation showing compliance with each of the Coverage Tests and the Collateral Quality Tests (including, with respect to the S&P CDO Monitor Test, the weighted average rating, the default measure, variability measure and correlation measure, the scenario loss rate and/or such other information required to be computed with respect to the S&P CDO Monitor Test), accompanied by a list setting forth the applicable maximum or minimum value, percentage or ratio which must be maintained pursuant to this Agreement with respect to each of the Coverage Tests and a list setting forth the results of the calculation of each of the Coverage Tests with respect to the Collateral Debt Securities; provided that each Monthly Report shall provide that the foregoing calculations are reflected for informational purposes only and are not binding upon the Issuer;

 

(viii)               the identity of each Collateral Debt Security that was upgraded or downgraded or placed on watch for upgrade or downgrade by any Rating Agency since the date of the later of the last Monthly Report and the last Note Valuation Report; provided that the identity of each Collateral Debt Security that was upgraded or downgraded for purposes of this clause (viii)  shall not be obtained from Bloomberg Financial Markets On-Line Data Retrieval Service or a similar service and must be obtained from information provided directly by the Rating Agencies;

 

(ix)                       the amount of Purchased Accrued Interest;

 

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(x)                          a description of any transactions with the Collateral Advisor, the Issuer, the Collateral Administrator and the Collateral Agent and any Affiliates thereof;

 

(xi)                       the Class A-1 Note Break-Even Loss Rate, the Class A-2 Note Break-Even Loss Rate, the Class B-1 Note Break-Even Loss Rate, the Class B-2 Note Break-Even Loss Rate, the Class C-1 Note Break-Even Loss Rate, the Class C-2 Note Break-Even Loss Rate and the Class D Note Break-Even Loss Rate;

 

(xii)                    the Class A-1 Note Loss Differential, the Class A-2 Note Loss Differential, the Class B-1 Note Loss Differential, the Class B-2 Note Loss Differential, the Class C-1 Note Loss Differential, the Class C-2 Note Loss Differential and the Class D Note Loss Differential;

 

(xiii)                 the Class A-1 Note Scenario Default Rate, the Class A-2 Note Scenario Default Rate, the Class B-1 Note Scenario Default Rate, the Class B-2 Note Scenario Default Rate, the Class C-1 Note Scenario Default Rate, the Class C-2 Note Scenario Default Rate and the Class D Note Scenario Default Rate; and

 

(xiv)                such other information as the Trustee, S&P or the Initial Purchasers may reasonably request.

 

Upon receipt of each Monthly Report, the Trustee and the Collateral Advisor shall compare the information contained therein to the information contained in their respective records with respect to the Collateral and shall, within two (2) Business Days after receipt of such Monthly Report, notify each of the Issuer, each Hedge Counterparty and the Collateral Advisor if the information contained in the Monthly Report does not conform to the information maintained by the Trustee or the Collateral Advisor with respect to the Collateral, and detail any discrepancies. In the event that any discrepancy exists, the Trustee and the Issuer, or the Collateral Advisor on behalf of the Issuer, shall attempt to promptly resolve the discrepancy. If such discrepancy cannot be promptly resolved, the Trustee shall within five (5) Business Days after discovery of such discrepancy cause the Independent Accountants of national reputation to review such Monthly Report and the Trustee’s or the Collateral Agent’s records to determine the cause of such discrepancy. If such review reveals an error in the Monthly Report or the Trustee’s or the Collateral Agent’s records, the Monthly Report or Trustee’s or the Collateral Agent’s records, as the case may be, shall be revised accordingly and, as so revised, shall be utilized in making further calculations.

 

Subject to the terms of this Agreement, the Collateral Agent shall rely on the information supplied to it by the Collateral Advisor in relation to the preparation of the Monthly Report and shall not be liable for the accuracy or completeness of such information.

 

(c)                                             Each Note Valuation Report or Monthly Report sent to any Holder or beneficial owner of any Note or Preferred Share shall contain, or be accompanied by, the following notice:

 

“The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the “ Securities