-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SaF07mv6qKILzcJ6RDKccIW/Iu5fZ4ZSOqGnxks69oHqqMKlMbNiX2V168x/WACe LMDxOW/T2frC8/jTe1MIRQ== 0001116679-03-002398.txt : 20031106 0001116679-03-002398.hdr.sgml : 20031106 20031106164056 ACCESSION NUMBER: 0001116679-03-002398 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL TRUST INC CENTRAL INDEX KEY: 0001061630 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 946181186 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14788 FILM NUMBER: 03982721 BUSINESS ADDRESS: STREET 1: 410 PARK AVENUE STREET 2: 14TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2126550220 MAIL ADDRESS: STREET 1: PAUL, HASTINGS, JANOFSKY & WALKER LLP STREET 2: 75 E 55TH ST CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 cap10q.txt As filed with the Securities and Exchange Commission on November 6, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number 1-14788 ------- Capital Trust, Inc. ------------------- (Exact name of registrant as specified in its charter) Maryland 94-6181186 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 410 Park Avenue, 14th Floor, New York, NY 10022 - ------------------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 655-0220 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [x] APPLICABLE ONLY TO CORPORATE ISSUERS: The number of outstanding shares of the Registrant's Class A Common Stock, par value $0.01 per share ("Class A Common Stock"), as of November 5, 2003 was 6,509,067. EXPLANATORY NOTE - ---------------- On April 2, 2003, the Registrant successively filed with the State Department of Assessments and Taxation of Maryland articles of amendment and restatement and articles of amendment which amended and restated and then further amended the Registrant's charter effective as of that date, among other things, to eliminate from the authorized stock of the Registrant the entire 100,000,000 shares of the Registrant's authorized but unissued class B common stock and to effect a one (1) for three (3) reverse stock split of the Registrant's outstanding class A common stock. The financial statements and other stock and per share related information contained in this quarterly report on Form 10-Q reflects the foregoing amendments to the Registrant's charter as though they were in effect for all fiscal periods and as of all balance sheet dates presented. CAPITAL TRUST, INC. INDEX
Part I. Financial Information Item 1: Financial Statements 1 Consolidated Balance Sheets - September 30, 2003 (unaudited) and December 31, 2002 (audited) 1 Consolidated Statements of Income - Three and Nine Months Ended September 30, 2003 and 2002 (unaudited) 2 Consolidated Statements of Changes in Stockholders' Equity - Nine Months Ended September 30, 2003 and 2002 (unaudited) 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2003 and 2002 (unaudited) 4 Notes to Consolidated Financial Statements (unaudited) 5 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3: Quantitative and Qualitative Disclosures about Market Risk 21 Item 4: Disclosure Controls and Procedures 22 Part II. Other Information Item 1: Legal Proceedings 23 Item 2: Changes in Securities 23 Item 3: Defaults Upon Senior Securities 23 Item 4: Submission of Matters to a Vote of Security Holders 23 Item 5: Other Information 23 Item 6: Exhibits and Reports on Form 8-K 23 Signatures 25
Capital Trust, Inc. and Subsidiaries Consolidated Balance Sheets September 30, 2003 and December 31, 2002 (in thousands)
September 30, December 31, ---------------- ---------------- 2003 2002 ---------------- ---------------- (Unaudited) (Audited) Assets Cash and cash equivalents $ 10,179 $ 10,186 Available-for-sale securities, at fair value 23,633 65,233 Commercial mortgage-backed securities available-for-sale, at fair value 160,937 155,780 Loans receivable, net of $6,672 and $4,982 reserve for possible credit losses at September 30, 2003 and December 31, 2002, respectively 164,292 116,347 Equity investment in CT Mezzanine Partners I LLC ("Fund I"), CT Mezzanine Partners II LP ("Fund II"), CT MP II LLC ("Fund II GP") and CT Mezzanine Partners III, Inc. ("Fund III") (together "Funds") 23,997 28,974 Deposits and other receivables 383 431 Accrued interest receivable 3,291 4,422 Deferred income taxes 2,240 1,585 Prepaid and other assets 3,814 2,018 --------- --------- Total assets $ 392,766 $ 384,976 ========= ========= Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued expenses $ 11,347 $ 9,067 Credit facility 33,000 40,000 Term redeemable securities contract 12,089 -- Repurchase obligations 146,922 160,056 Deferred origination fees and other revenue 1,817 987 Interest rate hedge liabilities 838 1,822 --------- --------- Total liabilities 206,013 211,932 --------- --------- Company-obligated, mandatory redeemable, convertible trust preferred securities of CT Convertible Trust I, holding $89,742 of convertible 10.0% junior subordinated debentures at September 30, 2003 and December 31, 2002 ("Convertible Trust Preferred Securities") 89,346 88,988 --------- --------- Stockholders' equity: Class A common stock, $0.01 par value, 100,000 shares authorized, 6,492 and 5,405 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively ("Class A Common Stock" 65 54 Restricted Class A Common Stock, $0.01 par value, 17 and 100 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively ("Restricted Class A Common Stock" and together with Class A Common Stock, "Common Stock") -- 1 Additional paid-in capital 140,917 126,919 Unearned compensation (25) (320) Accumulated other comprehensive loss (31,561) (28,988) Accumulated deficit (11,989) (13,610) --------- --------- Total stockholders' equity 97,407 84,056 --------- --------- Total liabilities and stockholders' equity $ 392,766 $ 384,976 ========= =========
See accompanying notes to unaudited consolidated financial statements. -1- Capital Trust, Inc. and Subsidiaries Consolidated Statements of Income Three and Nine Months Ended September 30, 2003 and 2002 (in thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 2003 2002 2003 2002 -------------- -------------- -------------- -------------- Income from loans and other investments: Interest and related income $ 11,757 $ 11,036 $ 29,384 $ 37,991 Less: Interest and related expenses 2,616 3,757 7,369 14,020 -------------- -------------- -------------- -------------- Income from loans and other investments, 9,141 7,279 22,015 23,971 net -------------- -------------- -------------- -------------- Other revenues: Management and advisory fees from Funds 2,385 2,548 5,793 7,624 Income/(loss) from equity investments in Funds 367 1,156 1,085 (618) Advisory and investment banking fees -- 2,057 -- 2,207 Net gain on sales of investments and reduced maturity of fair value hedge -- -- -- 1,651 Other interest income 8 46 46 104 -------------- -------------- -------------- -------------- Total other revenues 2,760 5,807 6,924 10,968 -------------- -------------- -------------- -------------- Other expenses: General and administrative 3,804 3,982 10,497 11,390 Other interest expense -- -- -- 23 Depreciation and amortization 293 248 781 744 Net unrealized (gain)/loss on derivative securities and corresponding hedged risk on CMBS securities -- 180 -- 2,776 Recapture of allowance for possible credit losses -- -- -- (2,963) -------------- -------------- -------------- -------------- Total other expenses 4,097 4,410 11,278 11,970 -------------- -------------- -------------- -------------- Income before income taxes and distributions and amortization on Convertible Trust Preferred Securities 7,804 8,676 17,661 22,969 Provision for income taxes 655 4,454 655 11,540 -------------- -------------- -------------- -------------- Income before distributions and amortization on Convertible Trust Preferred Securities 7,149 4,222 17,006 11,429 Distributions and amortization on Convertible Trust Preferred Securities, net of income tax benefit of $2,301 and $6,195 for the three and nine months ended September 30, 2002, respectively 2,363 2,669 7,089 7,186 -------------- -------------- -------------- -------------- Net income allocable to Common Stock $ 4,786 $ 1,553 $ 9,917 $ 4,243 ============== ============== ============== ============== Per share information: Net earnings per share of Common Stock: Basic $ 0.74 $ 0.26 $ 1.69 $ 0.69 ============== ============== ============== ============== Diluted $ 0.66 $ 0.25 $ 1.67 $ 0.68 ============== ============== ============== ============== Weighted average shares of Common Stock outstanding: Basic 6,502,075 6,090,408 5,858,659 6,174,327 ============== ============== ============== ============== Diluted 10,861,674 6,107,825 10,182,850 6,242,770 ============== ============== ============== ==============
See accompanying notes to unaudited consolidated financial statements. -2- Capital Trust, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity For the Nine Months Ended September 30, 2003 and 2002 (in thousands) (unaudited)
Restricted Accumulated Class A Class A Additional Other Comprehensive Common Common Paid-In Unearned Comprehensive Accumulated Income/(Loss) Stock Stock Capital Compensation Income/(Loss) Deficit Total ------------ ------------------------------------------------------------------------------- Balance at January 1, 2002 $ 61 $ 1 $ 136,930 $ (583) $ (29,909) $ (3,872) $ 102,628 Net income $ 4,243 -- -- -- -- -- 4,243 4,243 Unrealized loss on derivative financial instruments, net of related income taxes (3,958) -- -- -- -- (3,958) -- (3,958) Unrealized gain on available-for-sale securities, net of related income taxes 713 -- -- -- -- 713 -- 713 Issuance of Class A Common Stock unit awards -- -- 1 312 -- -- -- 313 Issuance of restricted Class A Common Stock -- -- -- 400 (400) -- -- -- Vesting of restricted Class A Common Stock to unrestricted Class A Common Stock -- 1 (1) -- -- -- -- -- Restricted Class A Common Stock earned -- -- -- -- 504 -- -- 504 Repurchase and retirement of shares of Class A Common Stock previously outstanding -- (2) -- (3,110) -- -- -- (3,112) ----------- ------------------------------------------------------------------------------- Balance at September 30, 2002 $ 998 $ 60 $ 1 $ 134,532 $ (479) $ (33,154) $ 371 $ 101,331 =========== =============================================================================== Balance at January 1, 2003 $ 54 $ 1 $ 126,919 $ (320) $ (28,988) $(13,610) $ 84,056 Net income $ 9,917 -- -- -- -- -- 9,917 9,917 Unrealized gain on derivative financial instruments 984 -- -- -- -- 984 -- 984 Unrealized loss on available-for-sale securities (3,557) -- -- -- -- (3,557) -- (3,557) Sale of shares of Class A Common Stock under stock option agreement -- -- -- 152 -- -- -- 152 Cancellation of restricted Class A Common Stock -- -- -- (192) 192 -- -- -- Vesting of restricted Class A Common Stock to unrestricted Class A Common Stock -- 1 (1) -- -- -- -- -- Restricted Class A Common Stock earned -- -- -- -- 103 -- -- 103 Repurchase of warrants to purchase shares of Class A Common Stock -- -- -- (2,132) -- -- -- (2,132) Repurchase and retirement of shares of Class A Common Stock previously outstanding -- (1) -- (946) -- -- -- (947) Dividends declared on Class A Common Stock -- -- -- -- -- -- (8,296) (8,296) Shares redeemed in one for three reverse stock split -- -- -- (8) -- -- -- (8) Shares of Class A Common Stock issued in private offering -- 11 -- 17,124 -- -- -- 17,135 ----------- ----------------------------------------------------------------------------- Balance at September 30, 2003 $ 7,344 $ 65 $ -- $ 140,917 $ (25) $ (31,561) $(11,989) $ 97,407 =========== =============================================================================
See accompanying notes to unaudited consolidated financial statements. -3- Capital Trust, Inc. and Subsidiaries Consolidated Statements of Cash Flows Nine months ended September 30, 2003 and 2002 (in thousands) (unaudited)
2003 2002 -------------- -------------- Cash flows from operating activities: Net income $ 9,917 $ 4,243 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deferred income taxes (655) (264) Recapture of allowance for possible credit losses -- (2,963) Depreciation and amortization 781 744 Loss/(income) from equity investments in Funds (1,085) 618 Net gain on sales of CMBS and available-for-sale securities -- (711) Unrealized (gain)/loss on hedged and derivative securities -- 2,776 Restricted Class A Common Stock earned 103 504 Amortization of premiums and accretion of discounts on loans and investments, net (824) (2,084) Accretion of discounts on term redeemable securities contract -- 680 Accretion of discounts and fees on Convertible Trust Preferred Securities, net 358 1,186 Changes in assets and liabilities, net: Deposits and other receivables 48 721 Accrued interest receivable 3,669 256 Prepaid and other assets (1,797) 15 Deferred origination fees and other revenue 775 683 Accounts payable and accrued expenses (766) (1,774) -------------- -------------- Net cash provided by operating activities 10,524 4,630 -------------- -------------- Cash flows from investing activities: Purchases of available-for-sale securities -- (39,999) Principal collections and proceeds from sales of available-for-sale securities 39,923 109,671 Purchases of CMBS (6,157) -- Principal collections and proceeds from sales of CMBS -- 67,880 Origination and purchase of loans receivable (73,275) -- Principal collections and proceeds from sale of loans receivable 73,617 114,955 Equity investments in Funds (9,119) (5,973) Return of capital from Funds 7,745 9,414 Purchase of remaining interest in Fund I (19,946) -- Purchases of equipment and leasehold improvements (22) (5) -------------- -------------- Net cash provided by investing activities 12,766 255,943 -------------- -------------- Cash flows from financing activities: Proceeds from repurchase obligations 41,152 166,974 Repayment of repurchase obligations (54,286) (142,097) Proceeds from credit facilities 83,015 81,000 Repayment of credit facilities (114,100) (167,211) Proceeds from term redeemable securities contract 20,000 35,816 Repayment of term redeemable securities contract (7,911) (173,628) Repayment of notes payable -- (977) Repayment of Convertible Trust Preferred Securities -- (60,258) Sale of shares of Class A Common Stock under stock option agreement 152 -- Payment of Class A Common Stock Dividend (5,367) -- Repurchase of warrants to purchase shares of Class A Common Stock (2,132) -- Proceeds from sale of shares of Class A Common Stock 17,135 -- Repurchase and retirement of shares of Common and Preferred Stock previously outstanding (955) (3,112) -------------- -------------- Net cash used in financing activities (23,297) (263,493) -------------- -------------- Net increase/(decrease) in cash and cash equivalents (7) (2,920) Cash and cash equivalents at beginning of year 10,186 11,651 -------------- -------------- Cash and cash equivalents at end of period $ 10,179 $ 8,731 ============== ==============
See accompanying notes to unaudited consolidated financial statements. -4- Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements September 30, 2003 (unaudited) 1. Presentation of Financial Information The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the financial statements and the related management's discussion and analysis of financial condition and results of operations filed with the Annual Report on Form 10-K of Capital Trust, Inc. and Subsidiaries (collectively, the "Company") for the fiscal year ended December 31, 2002. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three months ended September 30, 2003 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2003. The accompanying unaudited consolidated interim financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform in all material respects to accounting principles generally accepted in the United States. Certain prior period amounts have been reclassified to conform to current period classifications. On April 2, 2003, the Company's charter was amended and restated and then further amended to eliminate from the authorized stock of the Company the entire 100,000,000 shares of the Company's authorized but unissued class B common stock and to effect a one (1) for three (3) reverse stock split of the Company's class A common stock. Fractional shares resulting from the reverse stock split were settled in cash at a rate of $16.65 multiplied by the percentage of a share owned after the split. All per share information concerning the computation of earnings per share, dividends per share, authorized stock, and per share conversion and exercise prices reported in the accompanying consolidated interim financial statements and these notes to consolidated financial statements have been adjusted as if the amendments to the Company's charter were in effect for all fiscal periods and as of all balance sheet dates presented. 2. REIT Election In December 2002, the Company's board of directors authorized the Company's election to be taxed as a real estate investment trust ("REIT") for the 2003 tax year. The Company will continue to make, for its own account and as investment manager for the account of funds under management, loans and debt-related investments in various types of commercial real estate and related assets. In view of the Company's election to be taxed as a REIT, the Company has tailored its balance sheet investment program to originate or acquire loans and investments to produce a portfolio that meets the asset and income tests necessary to maintain the Company's qualification as a REIT. In order to accommodate the Company's REIT status, the legal structure of future investment funds the Company sponsors may be different from the legal structure of the Company's existing investment funds. In order to qualify as a REIT, five or fewer individuals may own no more than 50% of the Company's Common Stock. As a means of facilitating compliance with such qualification, stockholders controlled by John R. Klopp and Craig M. Hatkoff and trusts for the benefit of the family of Samuel Zell each sold 166,666 shares of Class A Common Stock to an institutional investor in a transaction that closed on February 7, 2003. Following this transaction, the Company's largest five individual stockholders own in the aggregate less than 50% of the Company's Class A Common Stock. -5- Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 3. Purchase of Citigroup's Interest in Fund I In January 2003, the Company purchased the 75% interest in CT Mezzanine Partners I LLC ("Fund I") held by affiliates of Citigroup Alternative Investments, LLC ("Citigroup") for a purchase price of approximately $38.4 million (including the assumption of liabilities), at the book value of the fund. On January 31, 2003, the Company began consolidating the balance sheet and operations of Fund I in its consolidated financial statements. 4. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 5. New Accounting Pronouncement In May 2003, Statement of Financial Accounting Standards ("SFAS") No. 150 "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS No. 150") was issued. SFAS No. 150 defines the appropriate balance sheet classification of instruments with both debt and equity components and the appropriate expense classification for any dividend, interest or fair value adjustments. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The pronouncement is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. The Company has reviewed the provisions of this standard, and its adoption did not have a material effect on the Company's consolidated financial statements. 6. Available-for-Sale Securities At September 30, 2003, the Company's available-for-sale securities consisted of the following (in thousands):
Gross Unrealized Amortized ---------------- Estimated Cost Gains Losses Fair Value ----------------------------------------- Federal Home Loan Mortgage Corporation Gold, fixed rate interest at 6.50%, due September 1, 2031 $ 2,866 $ 98 $ -- $ 2,964 Federal Home Loan Mortgage Corporation Gold, fixed rate interest at 6.50%, due September 1, 2031 9,737 276 -- 10,013 Federal Home Loan Mortgage Corporation Gold, fixed rate interest at 6.50%, due September 1, 2031 866 31 -- 897 Federal Home Loan Mortgage Corporation Gold, fixed rate interest at 6.50%, due April 1, 2032 9,337 422 -- 9,759 ----------------------------------------- $ 22,806 $ 827 $ -- $ 23,633 =========================================
7. Commercial Mortgage Backed Securities ("CMBS") The Company pursues rated and unrated investments in public and private subordinated interests ("Subordinated Interests") in CMBS. During the three months ended September 30, 2003, the Company purchased $6,542,000 face amount of interests in two subordinated CMBS issues for $6,157,000. At September 30, 2003, the Company has CMBS totaling $160,937,000 of which $155,937,000 bear interest (including the accretion of the discounted purchase price) at fixed rates averaging 11.56% of the book value and $5,000,000 bear interest at variable rates averaging Libor + 2.93% (4.07% at September 30, 2003). The CMBS mature at various dates from August 2004 to March 2015. -6- Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 8. Loans Receivable At September 30, 2003 and December 31, 2002, the Company's loans receivable consisted of the following (in thousands): September 30, December 31, 2003 2002 --------------- --------------- (1) Mortgage Loans $ 13,121 $ 15,202 (2) Mezzanine Loans 157,843 98,268 (3) Other loans receivable -- 7,859 --------------- --------------- 170,964 121,329 Less: reserve for possible credit losses (6,672) (4,982) --------------- --------------- Total loans $ 164,292 $ 116,347 =============== =============== In connection with the Company's purchase of the Fund I interest held by Citigroup in January 2003, the Company recorded additional loans receivable of $50,034,000 and recorded a $1,690,000 increase to the reserve for possible credit losses on the acquisition date. The assets were recorded at their carrying value from Fund I, which approximated the market value on the acquisition date. One Mortgage Loan receivable with an original principal balance of $8,000,000 reached maturity on July 15, 2001 and has not been repaid with respect to principal and interest. In December 2002, the loan was written down to $4,000,000 through a charge to the allowance for possible credit losses. During the quarter ended September 30, 2003 the Company received proceeds of $731,000 reducing the carrying value of the loan to $3,269,000. In accordance with the Company's policy for revenue recognition, income recognition has been suspended on this loan and for the nine months ended September 30, 2003, $684,000 of potential interest income has not been recorded. During the nine months ended September 30, 2003, the Company purchased or originated seven Mezzanine Loans for $73,275,000, received partial repayments on eight Mortgage and Mezzanine Loans totaling $4,856,000 and received three Mezzanine Loan satisfactions and one other loan satisfaction totaling $68,761,000. At September 30, 2003, the weighted average interest rate in effect, including amortization of fees and premiums, for the Company's performing loans receivable is as follows: (1) Mortgage Loans 10.00% (2) Mezzanine Loans 9.65% Total loans 9.67% At September 30, 2003, $94,422,000 (56%) of the aforementioned performing loans bear interest at floating rates ranging from LIBOR plus 235 basis points to LIBOR plus 900 basis points. The remaining $73,273,000 (44%) of loans bear interest at fixed rates ranging from 11.62% to 12.00%. 9. Equity Investments in Funds CT Mezzanine Partners III, Inc. ("Fund III") On June 2, 2003, CT Mezzanine Partners III, Inc. ("Fund III"), the Company's third commercial real estate mezzanine investment fund co-sponsored with Citigroup, effected its initial closing. Fund III commenced its investment operations immediately following the initial closing and on June 27, 2003, July 17, 2003 and August 8, 2003, respectively, Fund III effected its second, third and final closings resulting in total equity commitments in Fund III of $425.0 million. The equity commitments made to Fund III by affiliates of the Company and Citigroup are $20.0 million and $80.0 million, respectively. Based upon the $425.0 million aggregate equity commitments made at the initial and subsequent closings, during the investment period of Fund III, the Company will earn annual investment management fees of $6.0 million through the service of its subsidiary, CT Investment Management Co. LLC ("CTIMCO"), as investment manager to Fund III. -7- Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 10. Long-Term Debt Credit Facility In connection with the Company's purchase of the Fund I interest held by Citigroup in January 2003, the Company assumed the obligations under the credit facility entered into by Fund I. There were outstanding borrowings of $24,084,000 on the date of acquisition. The lender for the Fund I credit facility was the same as the lender for the Company's outstanding credit facility and thus the two facilities were combined for reporting purposes. On June 27, 2003, the Company formally combined under one facility the outstanding borrowings under the two facilities and extended the maturity of the $150 million credit facility for two additional years to July 16, 2005, with an automatic nine month amortizing extension option, if not otherwise extended, on substantially the same terms. At September 30, 2003, the Company has borrowed $33,000,000 under the credit facility at an average interest rate of Libor + 2.25% (3.37% at September 30, 2003). On September 30, 2003, the unused amount of potential credit under the remaining credit facility was $117,000,000. Assuming no additional utilization under the credit facility and including the amortization of fees paid and capitalized over the term of the credit facility, the all-in effective borrowing cost was 5.59% at September 30, 2003. The Company has pledged assets of $75,919,000 as collateral for the borrowing against such credit facility. Repurchase Obligations At September 30, 2003, the Company was obligated to four counterparties under repurchase agreements. The repurchase obligation with the first counterparty, an affiliate of a securities dealer, was utilized to finance CMBS securities. At September 30, 2003, the Company has sold CMBS assets with a book and market value of $154,776,000 and has a liability to repurchase these assets for $91,360,000 that is non-recourse to the Company. This repurchase obligation had an original one-year term that expired in February 2003 and was extended to February 2004. The liability balance bears interest at specified rates over LIBOR based upon each asset included in the obligation. The repurchase obligation with the second counterparty, a securities dealer, arose in connection with the purchase of Federal Home Loan Mortgage Corporation Gold available-for-sale securities. At September 30, 2003, the Company has sold such assets with a book and market value of $23,633,000 and has a liability to repurchase these assets for $22,909,000. This repurchase agreement comes due monthly and has a current maturity date in November 2003. The liability balance bears interest at LIBOR. The repurchase obligation with the third counterparty, a securities dealer, was entered into on May 28, 2003 pursuant to the terms of a master repurchase agreement and provides the Company with the right to finance up to $50,000,000, which was upsized to $100,000,000 in August 2003, by selling specific assets to the counterparty. To September 30, 2003, the master repurchase agreement has been utilized in connection with the purchase of four loans in the second and third quarters of 2003. At September 30, 2003, the Company has sold loans with a book and market value of $49,977,000 and has a liability to repurchase these assets for $24,443,000. The master repurchase agreement terminates on June 1, 2004, with an automatic nine month amortizing extension option, if not otherwise extended, and bears interest at specified rates over LIBOR based upon each asset included in the obligation. The repurchase obligations with the fourth counterparty, a securities dealer, were entered into during the third quarter of 2003 in connection with the purchase of a loan and CMBS securities. At September 30, 2003, the Company has sold a loan and CMBS with a book and market value of $9,950,000 and has a liability to repurchase these assets for $8,210,000. The repurchase agreements are matched to the term of the underlying loan and CMBS that mature between August 2004 and January 2005 and bear interest at specified rates over LIBOR based upon each asset included in the obligation. The average borrowing interest rate in effect for all the repurchase obligations outstanding at September 30, 2003 was Libor + 1.06% (2.17% at September 30, 2003). Assuming no additional utilization under the repurchase obligations and including the amortization of fees paid and capitalized over the term of the repurchase obligations, the all-in effective borrowing cost was 2.67% at September 30, 2003. -8- Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) Term Redeemable Securities Contract At September 30, 2003, the Company has borrowed $12,089,000 under a $75 million term redeemable securities contract at a blended interest rate of Libor + 1.91% (3.03% at September 30, 2003). On September 30, 2003, the unused amount of potential credit under the remaining credit facility was $62,911,000. Assuming no additional utilization under the term redeemable securities contract and including the amortization of fees paid and capitalized over the term of the term redeemable securities contract, the all-in effective borrowing cost was 6.26% at September 30, 2003. The Company has pledged assets of $18,574,000 as collateral for the borrowing against such credit facility. 11. Derivative Financial Instruments The following table summarizes the notional value and fair value of the Company's derivative financial instruments at September 30, 2003. The notional value provides an indication of the extent of the Company's involvement in these instruments at that time, but does not represent exposure to credit, interest rate or foreign exchange market risks.
Interest Final Hedge Type Notional Rate Maturity Fair Value Value - --------- ---------------- -------------- ------------ --------- ------------- Swap Cash Flow Hedge $85,000,000 4.2425% 2015 $ (667,000) Swap Cash Flow Hedge 24,000,000 4.2325% 2015 (171,000)
On September 30, 2003, the derivative financial instruments were reported at their fair value as interest rate hedge liabilities of $838,000. 12. Earnings Per Share The following table sets forth the calculation of Basic and Diluted EPS for the nine months ended September 30, 2003 and 2002:
Nine Months Ended September 30, 2003 Nine Months Ended September 30, 2002 -------------------------------------- -------------------------------------- Net Income Shares Per Share Net Income Shares Per Share Amount Amount ------------- ----------- ------------ ------------- ------------- ---------- Basic EPS: Net earnings per share of Common Stock $ 9,917,000 5,858,659 $ 1.69 $4,243,000 6,174,327 $ 0.69 =========== ========== Effect of Dilutive Securities Options outstanding for the purchase of Common -- 50,769 -- 25,493 Stock Convertible Trust Preferred Securities exchangeable for shares of Common Stock 7,089,000 4,273,422 -- -- Warrants outstanding for the purchase of Common -- -- -- 42,950 Stock ------------- ------------ ------------- ------------- Diluted EPS: Net earnings per share of Common Stock and Assumed Conversions $17,006,000 10,182,850 $ 1.67 $4,243,000 6,242,770 $ 0.68 ============= ============ =========== ============= ============= ==========
-9- Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) The following table sets forth the calculation of Basic and Diluted EPS for the three months ended September 30, 2003 and 2002:
Three Months Ended Three Months Ended September 30, 2003 September 30, 2002 ------------------------------------- -------------------------------------- Net Income Shares Per Share Net Income Shares Per Share Amount Amount ------------ -------------- --------- ------------- ------------- ---------- Basic EPS: Net earnings per share of Common Stock $4,786,000 6,502,075 $ 0.74 $1,553,000 6,090,408 $ 0.26 ========= ========== Effect of Dilutive Securities Options outstanding for the purchase of Common -- 86,177 -- 17,417 Stock Convertible Trust Preferred Securities exchangeable for shares of Common Stock 2,363,000 4,273,422 -- -- Warrants outstanding for the purchase of Common -- -- -- -- Stock ------------- ------------ ------------- ------------ Diluted EPS: Net earnings per share of Common Stock and Assumed Conversions $7,149,000 10,861,674 $ 0.66 $1,553,000 6,107,825 $ 0.25 ============ ============== ========= ============= ============= ==========
All per share information has been adjusted for the one for three reverse stock split in the computation of earnings per share and dividends per share as presented on the consolidated statements of income. See Note 1. 13. Income Taxes The Company intends to make an election to be taxed as a REIT under Section 856(c) of the Internal Revenue Code of 1986, as amended, commencing with the tax year ending December 31, 2003. As a REIT, the Company generally is not subject to federal income tax. To maintain qualification as a REIT, the Company must distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate rates. The Company may also be subject to certain state and local taxes on its income and property. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. At September 30, 2003, the Company was in compliance with all REIT requirements. During the three and nine months ended September 30, 2003, the Company recorded $655,000 of income tax expense for income that was attributable to taxable REIT subsidiaries. The Company's effective tax rate for the three months ended September 30, 2003 attributable to its taxable REIT subsidiaries was 67.7%. The difference between the U.S. federal statutory tax rate of 35% and the effective tax rate was primarily state and local taxes, net of federal tax benefit, and compensation in excess of deductible limits. 14. Class A Common Stock On June 18, 2003, the Company issued 1,075,000 shares of Class A Common Stock in a private placement. Thirty-two separate investors, led by certain institutional clients advised by Lend Lease Rosen Real Estate Securities, LLC, purchased the shares. Net proceeds to the Company were $17.1 million after payment of offering expenses and fees to Conifer Securities, LLC, placement agent for the Company. - 10 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 15. Dividends In order to maintain its election to qualify as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90% of its REIT taxable income and must distribute 100% of its REIT taxable income to avoid paying corporate federal income taxes. The Company anticipates it will distribute all of its REIT taxable income to its stockholders. Because REIT taxable income differs from cash flow from operations due to non-cash revenues or expenses, in certain circumstances, the Company may be required to borrow to make sufficient dividend payments to meet this anticipated dividend threshold. On September 22, 2003, the Company declared a dividend of approximately $2,929,000, or $0.45 per share of Class A Common Stock applicable to the three-month period ended September 30, 2003, payable on October 15, 2003 to stockholders of record on September 30, 2003. 16. Employee Benefit Plans 1997 Long-Term Incentive Stock Plan During the nine months ended September 30, 2003, the Company did not issue any options to acquire shares of Class A Common Stock or restricted shares of Class A Common Stock. The following table summarizes the option activity under the incentive stock plan for the quarter ended September 30, 2003:
Weighted Options Exercise Price Average Exercise Outstanding per Share Price per Share ---------------- -------------------- ------------------ Outstanding at January 1, 2003 657,250 $12.375 - $30.00 $ 18.87 Granted in 2003 -- -- -- Exercised in 2003 (8,667) $12.375 - $18.00 17.49 Canceled in 2003 (121,115) $12.375 - $30.00 18.51 ---------------- ------------------ Outstanding at September 30, 2003 527,468 $12.375 - $30.00 $ 18.98 ================ ==================
At September 30, 2003, 427,582 of the options are exercisable. At September 30, 2003, the outstanding options have various remaining contractual exercise periods ranging from 2.26 to 8.35 years with a weighted average life of 5.86 years. 17. Supplemental Disclosures for Consolidated Statements of Cash Flows Interest paid on the Company's outstanding debt and Convertible Preferred Trust Securities during the nine months ended September 30, 2003 and 2002 was $14,272,000 and $25,516,000, respectively. Income taxes paid by the Company during the nine months ended September 30, 2003 and 2002 was $1,693,000 and $8,275,000, respectively. In connection with the purchase of the Fund I interest held by Citigroup, the Company assumed $24,084,000 of credit facility debt that is a non-cash activity. 18. Segment Reporting The Company has established two reportable segments beginning January 1, 2003. The Company has an internal information system that produces performance and asset data for its two segments along service lines. The Balance Sheet Investment segment includes all of the Company's activities related to direct loan and investment activities (including direct investments in Funds) and the financing thereof. The Investment Management segment includes all of the Company's activities related to investment management services provided to the Company and funds under management and includes the Company's taxable REIT subsidiary, CTIMCO, and its subsidiaries. The segment also provides asset management and advisory services relating to real estate properties. - 11 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) The following table details each segment's contribution to the Company's overall profitability and the identified assets attributable to each such segment for the nine months ended and as of September 30, 2003, respectively (in thousands):
Balance Sheet Investment Inter-Segment Investment Management Activities Total --------------- --------------- --------------- --------------- Income from loans and other investments: Interest and related income $ 29,384 $ -- $ -- $ 29,384 Less: Interest and related expenses 7,369 -- -- 7,369 --------------- --------------- --------------- --------------- Income from loans and other 22,015 -- -- 22,015 investments, net --------------- --------------- --------------- --------------- Other revenues: Management and advisory fees -- 9,509 (3,716) 5,793 Income/(loss) from equity investments in Funds 1,866 (781) -- 1,085 Other interest income (77) 123 -- 46 --------------- --------------- --------------- --------------- Total other revenues 1,789 8,851 (3,716) 6,924 --------------- --------------- --------------- --------------- Other expenses: General and administrative 2,234 8,263 -- 10,497 Management fees paid 3,716 -- (3,716) -- Depreciation and amortization 634 147 -- 781 --------------- --------------- --------------- --------------- Total other expenses 6,584 8,410 (3,716) 11,278 --------------- --------------- --------------- --------------- Income before income taxes and distributions and amortization on Convertible Trust Preferred Securities 17,220 441 -- 17,661 Provision for income taxes -- 655 -- 655 --------------- --------------- --------------- --------------- Income before distributions and amortization on Convertible Trust Preferred Securities 17,220 (214) -- 17,006 Distributions and amortization on Convertible Trust Preferred Securities 7,089 -- -- 7,089 --------------- --------------- --------------- --------------- Net income allocable to Class A Common Stock $ 10,131 $ (214) $ -- $ 9,917 =============== =============== =============== =============== Total Assets $ 393,307 $ 20,855 $ (21,426) $ 392,766 =============== =============== =============== ===============
- 12 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) The following table details each segment's contribution to the Company's overall profitability attributable to each such segment for the three months ended and as of September 30, 2003, respectively (in thousands):
Balance Sheet Investment Inter-Segment Investment Management Activities Total --------------- --------------- --------------- --------------- Income from loans and other investments: Interest and related income $ 11,757 $ -- $ -- $ 11,757 Less: Interest and related expenses 2,616 -- -- 2,616 --------------- --------------- --------------- --------------- Income from loans and other investments, net 9,141 -- -- 9,141 --------------- --------------- --------------- --------------- Other revenues: Management and advisory fees -- 3,886 (1,501) 2,385 Income/(loss) from equity investments in Funds 457 (90) -- 367 Other interest income (97) 105 -- 8 --------------- --------------- --------------- --------------- Total other revenues 360 3,901 (1,501) 2,760 --------------- --------------- --------------- --------------- Other expenses: General and administrative 953 2,851 -- 3,804 Management fees paid 1,501 -- (1,501) -- Depreciation and amortization 212 81 -- 293 --------------- --------------- --------------- --------------- Total other expenses 2,666 2,932 (1,501) 4,097 --------------- --------------- --------------- --------------- Income before income taxes and distributions and amortization on Convertible Trust Preferred Securities 6,835 969 -- 7,804 Provision for income taxes -- 655 -- 655 --------------- --------------- --------------- --------------- Income before distributions and amortization on Convertible Trust Preferred Securities 6,835 314 -- 7,149 Distributions and amortization on Convertible Trust Preferred Securities 2,363 -- -- 2,363 --------------- --------------- --------------- --------------- Net income allocable to Class A Common Stock $ 4,472 $ 314 $ -- $ 4,786 =============== =============== =============== ===============
All revenues were generated from external sources within the United States. The Investment Management segment earned fees of $3,716,000 and $1,501,000 for management of the Balance Sheet Investment segment for the nine and three months ended September 30, 2003, respectively, which is reflected as offsetting adjustments to other revenues and other expenses in the Inter-Segment Activities column in the tables above. - 13 - ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. Historical results set forth are not necessarily indicative of the future financial position and results of operations of the Company. Introduction - ------------ The Company is a fully integrated, self-managed finance and investment management company that makes debt-related investments in various types of commercial real estate assets and operating companies. Currently, the Company makes balance sheet investments for its own account and manages a series of private equity funds on behalf of institutional and individual investors. Since 1997, the Company has completed, for its own account and on behalf of the funds that it manages, $3.2 billion of total investments in 107 separate transactions. In December 2002, the Company's board of directors authorized an election to be taxed as a REIT for the 2003 tax year. Balance Sheet Overview - ---------------------- At September 30, 2003, the Company has four investments in Federal Home Loan Mortgage Corporation Gold securities with a face value of $22,632,000. The securities bear interest at a fixed rate of 6.5% of the face value. The Company purchased the securities at a net premium and has $174,000 of the premium remaining to be amortized over the remaining lives of the securities. After premium amortization, the securities bear interest at a blended rate of 6.04%. The securities are carried at a market value of $23,633,000, an $827,000 unrealized gain to their amortized cost. The Company holds eighteen investments in twelve separate issues of CMBS with a face value of $215,512,000 at September 30, 2003. $5,000,000 face value of the CMBS bear interest at a variable rate which averages LIBOR + 2.95% (4.07% at September 30, 2003). The remaining $210,512,000 face value of the CMBS bear interest at fixed rates averaging 7.64% of the face value. The Company purchased the fixed rate CMBS at discounts. The remaining discount to be amortized into income is $23,025,000 over the remaining lives of the securities. After discount amortization, the fixed rate securities bear interest at a blended rate of 11.55%. The securities are carried at market value of $160,937,000, reflecting a $31,550,000 unrealized loss to their amortized cost. On January 31, 2003, the Company purchased Citigroup's 75% interest in CT Mezzanine Partners I LLC ("Fund I") for a purchase price of approximately $38.4 million (including the assumption of liabilities), equal to the book value of the fund. In conjunction with the purchase on January 31, 2003, the Company began consolidating the balance sheet and operations of Fund I in its consolidated financial statements including four loans receivable totaling $50.0 million and $24.1 million of borrowings under a credit facility. In addition to those acquired with the purchase of Citigroup's interest in Fund I, the Company has originated or purchased seven new loans since December 31, 2002 totaling $73.3 million and has no future commitments under any existing loans. The Company has received full satisfaction of four loans totaling $68.8 million and partial repayments on eight loans totaling $4.9 million in 2003. At September 30, 2003, the Company had outstanding loans receivable totaling approximately $171.0 million. At September 30, 2003, the Company has twelve performing loans receivable with a current carrying value of $167,695,000. Two of the loans totaling $73,273,000 bear interest at a fixed blended rate of interest of 11.92%. The ten remaining loans totaling $94,422,000 bear interest at a variable rate of interest averaging LIBOR + 6.50% (7.94% at September 30, 2003 including LIBOR floors). One Mortgage Loan receivable with an original principal balance of $8,000,000 reached maturity on July 15, 2001 and has not been repaid with respect to principal and interest. In December 2002, the loan was written down to $4,000,000 through a charge to the allowance for possible credit losses. During the quarter ended September 30, 2003, the Company received proceeds of $731,000 reducing the carrying value of the loan to $3,269,000. In accordance with the Company's policy for revenue recognition, income recognition has been suspended on this loan and for the nine months ended September 30, 2003, $684,000 of potential interest income has not been recorded. All other loans are performing in accordance with their terms. At September 30, 2003, the Company has investments in Funds of $17,188,000. In addition to the investment, the Company has $6,809,000 of unamortized costs which were capitalized in conjuction with the organization and - 14 - capital raising of the funds. These costs are being amortized as expenses over the lives of the funds to which they pertain. The Company utilizes borrowings under a committed credit facility and a term redeemable securities contract, along with repurchase obligations to finance its balance sheet assets. At September 30, 2003, after assumption of the debt in conjunction with the purchase of Citigroup's interests in Fund I, the Company was party to two credit facilities with a commercial lender that provided for a total of $150 million of credit. On June 27, 2003, the Company formally combined under one facility the outstanding borrowings under the two facilities and extended the maturity of the $150 million credit facility for two additional years to July 16, 2005 on substantially the same terms. At September 30, 2003, the Company had outstanding borrowings under the credit facility of $33,000,000, and had unused potential credit of $117,000,000, an amount of available credit that provides the Company with adequate liquidity for its short-term needs. The credit facility provides for advances to fund lender-approved loans and investments made by the Company. Borrowings under the credit facility are secured by pledges of assets owned by the Company. Borrowings under the credit facility bear interest at specified rates over LIBOR, which rates may fluctuate, based upon the credit quality of the pledged assets. The credit facility provides for margin calls on asset-specific borrowings in the event of asset quality and/or market value deterioration as determined under the credit facility. The credit facility contains customary representations and warranties, covenants and conditions and events of default. The Company pays interest on the facility at specified rates over LIBOR based upon each asset included in the obligation. Based upon advances in place at September 30, 2003, the effective rate on the credit facility is LIBOR + 2.25% (3.37% at September 30, 2003). The Company has capitalized costs of $1,332,000 which are being amortized over the remaining life of the facility (21.5 months at September 30, 2003). After amortizing these costs to interest expense, the all-in effective borrowing cost on the facility is 5.59% based upon the amount currently outstanding on the credit facility. On September 30, 2003, the Company was party to a $75 million term redeemable securities contract. The term redeemable securities contract has a two-year term, maturing in February 2004, with an automatic one-year amortizing extension option, if not otherwise extended. The Company has borrowings against the term redeemable securities contract of $12,089,000 at September 30, 2003. The Company pays interest on the term redeemable securities contract at specified rates over LIBOR based upon each asset included in the obligation. Based upon advances in place at September 30, 2003, the blended rate on the term redeemable securities contract is LIBOR + 1.91% (3.03% at September 30, 2003). The Company has capitalized costs of $164,000 which are being amortized over the remaining life of the term redeemable securities contract (5 months at September 30, 2003). After amortizing these costs to interest expense, the all-in effective borrowing cost on the facility is 6.26% based upon the amount currently outstanding on the term redeemable securities contract. In May 2003, the Company entered into a new master repurchase agreement with a securities dealer that provides for the Company to finance up to $50,000,000, which was upsized to $100,000,000 in August 2003, by selling with a repurchase obligation specific assets to the counterparty. As of September 30, 2003, the Company has utilized the master repurchase agreement to finance the purchase of four loans during the second and third quarters of 2003. In the third quarter of 2003, the Company entered into another repurchase obligation in connection with the purchase of a loan and CMBS securities. In connection with the foregoing, at September 30, 2003, the Company has sold a loan and CMBS with a book and market value of $9,950,000 and has a liability to repurchase these assets for $8,210,000. The repurchase agreements are matched to the term of the underlying loan and CMBS that mature between August 2004 and January 2005 and bear interest at specified rates over LIBOR based upon each asset included in the obligation. At September 30, 2003, the Company has total outstanding repurchase obligations of $146,922,000. Based upon advances in place at September 30, 2003, the blended rate on the repurchase obligations is LIBOR + 1.06% (2.17% at September 30, 2003). The Company has capitalized costs of $494,000 which are being amortized over the remaining life of the repurchase obligations. After amortizing these costs to interest expense based upon the amount currently outstanding on the repurchase obligations, the all-in effective borrowing cost on the repurchase obligations is 2.67%. The Company expects to enter into new repurchase obligations at their maturity. The Company is party to two cash flow interest rate swaps with a total notional value of $109 million. These cash flow interest rate swaps effectively convert floating rate debt to fixed rate debt, which is utilized to finance assets which earn interest at fixed rates. At September 30, 2003, the Company receives LIBOR flat (1.12% at September 30, 2003) and pays an average rate of 4.24%. The market value of the swaps at September 30, 2003 is a - 15 - liability of $838,000, which is recorded as interest rate hedge liabilities and accumulated other comprehensive loss on the balance sheet of the Company. The Company also utilizes the outstanding Convertible Trust Preferred Securities to finance its balance sheet assets. The remaining $89,742,000 liquidation amount outstanding on this obligation bears interest at 10% through September 30, 2004. The interest rate increases by 0.75% on October 1, 2004 and on each October 1 thereafter. If the quarterly dividend paid on a share of Common Stock multiplied by four and divided by $21.00 is in excess of the interest rate in effect at that time, then the holders are entitled to be paid interest at that rate. The Convertible Trust Preferred Securities are convertible into shares of Class A Common Stock, in increments of $1,000 in liquidation amount, at a conversion price of $21.00 per share and are redeemable by the Company, in whole or in part, on or after September 30, 2004. In March 2003, the Company repurchased 66,427 shares of Class A Common stock under the open market share repurchase program from the Company's former chief financial officer at a price of $14.25 per share. After the repurchase, the Company has 666,339 shares remaining authorized for repurchase under the program. In 2001 and 2002, in connection with the organization of Fund I and CT Mezzanine Partners II LP ("Fund II"), the Company issued to affiliates of Citigroup warrants to purchase 2,842,822 shares of Class A Common Stock. At December 31, 2002, all such warrants had a $15.00 per share exercise price, were exercisable and were to expire on March 8, 2005. In January 2003, the Company purchased all of the warrants outstanding from the affiliates of Citigroup for $2.1 million. On June 18, 2003, the Company issued 1,075,000 shares of Class A Common Stock in a private placement made to thirty-two separate investors, led by certain institutional clients advised by Lend Lease Rosen Real Estate Securities, LLC. Net proceeds to the Company were $17.1 million after payment of offering costs and fees to Conifer Securities, LLC, placement agent for the Company. At September 30, 2003, the Company has 6,509,067 shares of its Class A Common Stock outstanding. Investment Management Overview - ------------------------------ The Company operated principally as a balance sheet investor until the start of its investment management business in March 2000 when it entered into a venture with affiliates of Citigroup Alternative Investments, LLC ("Citigroup") to co-sponsor and invest capital in a series of high-yield commercial real estate mezzanine investment funds managed by the Company. Pursuant to the venture agreement, the Company and Citigroup have co-sponsored Fund I, Fund II and CT Mezzanine Partners III, Inc. ("Fund III"). The Company has capitalized costs of $6,809,000, net, from the formation of the Funds that are being amortized over the remaining anticipated lives of the Funds. Fund I commenced its investment operations in May 2000 with equity capital supplied solely by the Company (25%) and Citigroup (75%). From May 11, 2000 to April 8, 2001 (the investment period for the fund), Fund I completed $330 million of total investments in 12 transactions. On January 31, 2003, the Company purchased from affiliates of Citigroup their 75% interest in Fund I for $38.4 million (including the assumption of liabilities). As of January 31, 2003, the Company began consolidating the operations of Fund I in its consolidated financial statements. Fund II had its initial closing on April 9, 2001 and its final closing on August 7, 2001, ultimately raising $845.2 million of total equity commitments, including $49.7 million (5.9%) and $198.9 million (23.5%) from the Company and Citigroup, respectively. The balance of the equity commitments were made by third-party private equity investors, including public and corporate pension plans, endowment funds, financial institutions and high net worth individuals. During its two-year investment period, which expired on April 9, 2003, Fund II invested $1.2 billion in 40 separate transactions. Fund II utilizes leverage to increase its return on equity, with a target debt-to-equity ratio of 2:1. Total capital calls during the investment period were $329.0 million. CT Investment Management Co. LLC ("CTIMCO"), a wholly-owned subsidiary of the Company, acts as the investment manager to Fund II and receives 100% of the base management fees paid by the fund. As of April 9, 2003 (the end of the Fund II investment period), CTIMCO began earning annual base management fees of 1.287% of invested capital. Based upon Fund II's invested capital at September 30, 2003 (the date upon which the calculation for the next quarter is based), CTIMCO will earn base management fees of $718,000 for the quarter ending December 31, 2003. - 16 - The Company and Citigroup, through their ownership of the general partner, are also entitled to receive incentive management fees from Fund II if the return on invested equity is in excess of 10% after all invested capital has been returned. The Fund II incentive management fees are split equally between the Company and Citigroup. The Company intends to pay 25% of its share of the Fund II incentive management fees as long-term incentive compensation to its employees. No such incentive fees have been earned at September 30, 2003 and as such, no amount has been accrued as income for such potential fees in the Company's financial statements. The amount of incentive fees to be received in the future will depend upon a number of factors, including the level of interest rates and the fund's ability to generate returns in excess of 10%, which is in turn impacted by the duration and ultimate performance of the fund's assets. Potential incentive fees received as Fund II winds down could result in significant additional income from operations in certain periods during which such payments can be recorded as income. If Fund II's assets were sold and liabilities were settled on October 1, 2003 at the recorded book value (net of the allowance for possible credit losses) and the fund equity and income were distributed, the Company would record approximately $4.7 million of incentive income. Since December 31, 2002, the Company has made equity contributions to Fund II of $5.5 million and equity contributions to Fund II's general partner of $757,000. The Company does not anticipate making any additional equity contributions to Fund II or its general partner. The Company's net investment in Fund II and its general partner at September 30, 2003 is $15.2 million. As of September 30, 2003, Fund II has 27 outstanding loans and investments totaling $607.8 million, all of which are performing in accordance with the terms of their agreements. On June 2, 2003, Fund III effected its initial closing and on August 8, 2003, its final closing, raising a total of $425.0 million in equity commitments. The Company and Citigroup made equity commitments of $20.0 million (4.7%) and $80.0 million (18.8%), respectively, with the balance made by third-party private equity investors. Since the initial closing, the Company has made equity investments in Fund III of $2,000,000 and has capitalized costs totaling $903,000, which are being amortized over the remaining anticipated life of Fund III. As of September 30, 2003, Fund III had closed five investments totaling $148.5 million of which $146.6 million remains outstanding at September 30, 2003. CTIMCO receives 100% of the base management fees from Fund III calculated at a rate equal to 1.42% per annum of committed capital during Fund III's two-year investment period (which expires June 2, 2005), and 1.42% of invested capital thereafter. Based upon Fund III's $425.0 million of total equity commitments, the Company will earn annual base management fees of $6.0 million during the investment period, through the service of its subsidiary, CTIMCO, as investment manager to Fund III. The Company and Citigroup are also entitled to receive incentive management fees from Fund III if the return on invested equity is in excess of 10% after all invested capital has been returned. The Company and Citigroup will receive 62.5% and 37.5%, respectively, of the total incentive management fees. The Company expects to distribute a portion of its share of the Fund III incentive management fees as long-term incentive compensation to its employees. Results of Operations for the Three and Nine Months Ended September 30, 2003 and 2002 - -------------------------------------------------------------------------------- The Company reported net income of $9,917,000 for the nine months ended September 30, 2003, an increase of $5,674,000 from the net income of $4,243,000 for the nine months ended September 30, 2002. This increase was primarily the result of a reduction in income taxes in 2003 in connection with the REIT election, the elimination of the net unrealized loss on derivative securities and the corresponding hedged risk on CMBS securities by settling the fair value hedge in December 2002 and entering into a new cash flow hedge, and the increase in income from equity investments in Funds. These increases were partially offset by a recapture of the allowance for possible credit losses, an advisory fee earned, sales of investments and the reduction of the maturity of fair value hedges resulting in net gains, all of which occurred in 2002 and did not recur in 2003. Other offsets to the increase included a reduction in management and advisory fees from Funds and a reduction in net income from loans and investments. The Company reported net income of $4,786,000 for the three months ended September 30, 2003, an increase of $3,233,000 from the net income of $1,553,000 for the three months ended September 30, 2002. This increase was primarily the result of a reduction in income taxes in 2003 with the REIT election and an increase in net income from loans and investments. These increases were partially offset by a reduction in income from equity investments in Funds and an advisory fee earned in 2002, which did not recur in 2003. - 17 - Interest and related income from loans and other investments amounted to $29,384,000 for the nine months ended September 30, 2003, a decrease of $8,607,000 from the $37,991,000 amount for the nine months ended September 30, 2002. Average interest-earning assets decreased from approximately $505.0 million for the nine months ended September 30, 2002 to approximately $358.3 million for the nine months ended September 30, 2003. The average interest rate earned on such assets increased from 10.1% in 2002 to 11.0% in 2003. During the nine months ended September 30, 2003 and September 30, 2002, the Company recognized $2,804,000 and $1,490,000, respectively, in additional income on the early repayment of loans and investments. Without this additional interest income, the earning rate for the 2003 period would have been 9.9% versus 9.7% for the 2002 period. LIBOR rates averaged 1.2% for the nine months ended September 30, 2003 and 1.8% for the nine months ended September 30, 2002, a decrease of 0.6%. The portion of the Company's average assets that earn interest at fixed-rates did not decrease proportionately to the decrease in assets that earn interest at variable rates in 2003, which served to offset the decrease in earnings from the decrease in the average LIBOR rate. Interest and related income from loans and other investments amounted to $11,757,000 for the three months ended September 30, 2003, an increase of $721,000 from the $11,036,000 amount for the three months ended September 30, 2002. Average interest-earning assets decreased from approximately $404.1 million for the three months ended September 30, 2002 to approximately $369.4 million for the three months ended September 30, 2003. The average interest rate earned on such assets increased from 10.8% in 2002 to 12.6% in 2003. During the three months ended September 30, 2003 and September 30, 2002, the Company recognized $2,437,000 and $1,120,000, respectively, in additional income on the early repayment of loans and investments. Without this additional interest income, the earning rate for the 2003 period would have been 10.0% versus 9.7% for the 2002 period. LIBOR rates averaged 1.1% for the three months ended September 30, 2003 and 1.8% for the three months ended September 30, 2002, a decrease of 0.7%. The portion of the Company's average assets that earn interest at fixed- rates did not decrease proportionately to the decrease in assets that earn interest at variable rates in 2003, which served to offset the decrease in earnings from the decrease in the average LIBOR rate. The Company utilizes the credit facility, the term redeemable securities contract, and repurchase obligations to finance its interest-earning assets. Interest and related expenses amounted to $7,369,000 for the nine months ended September 30, 2003, a decrease of $6,651,000 from the $14,020,000 amount for the nine months ended September 30, 2002. The decrease in expense was due to a decrease in the amount of average interest-bearing liabilities outstanding from approximately $279.5 million for the nine months ended September 30, 2002 to approximately $206.1 million for the nine months ended September 30, 2003, and a decrease in the average rate on interest-bearing liabilities from 6.7% to 4.8% for the same periods. The decrease in the average rate is substantially due to the decrease in swap levels and rates and the increased use of repurchase agreements as a percentage of total debt in the 2003 period at lower spreads to LIBOR than the credit facilities utilized in the 2002 period. Interest and related expenses amounted to $2,616,000 for the three months ended September 30, 2003, a decrease of $1,141,000 from the $3,757,000 amount for the three months ended September 30, 2002. The decrease in expense was due to a decrease in the average rate on interest-bearing liabilities from 8.8% for the three months ended September 30, 2002 to 5.0% for the three months ended September 30, 2003, partially offset by an increase in the amount of average interest-bearing liabilities outstanding from approximately $169.9 million to approximately $207.2 million. The decrease in the average rate is substantially due to the decrease in swap levels and rates and the increased use of repurchase agreements as a percentage of total debt in the 2003 period at lower spreads to LIBOR than the credit facilities utilized in the 2002 period. The Company also utilizes the outstanding Convertible Trust Preferred Securities to finance its interest-earning assets. During the nine months ended September 30, 2003 and 2002, the Company recognized $7,089,000 and $7,186,000, respectively, of net expenses related to its outstanding Convertible Trust Preferred Securities. This amount consisted of distributions to the holders totaling $6,731,000 and $12,195,000, respectively, and amortization of discount and origination costs totaling $358,000 and $1,186,000, respectively, during the nine months ended September 30, 2003 and 2002. In the 2002 period, this total was partially offset by a tax benefit of $6,195,000. Due to the Company's election to be taxed as a REIT, there is no tax benefit for the expense in the 2003 period. The decrease in the distribution amount and amortization of discount and origination costs resulted from the elimination of the distributions and discount and fees on the $60.3 million Non-Convertible Amount, which was repaid on September 30, 2002. - 18 - During the three months ended September 30, 2003 and 2002, the Company recognized $2,363,000 and $2,669,000, respectively, of net expenses related to its outstanding Convertible Trust Preferred Securities. This amount consisted of distributions to the holders totaling $2,244,000 and $4,184,000, respectively, and amortization of discount and origination costs totaling $119,000 and $786,000, respectively, during the three months ended September 30, 2003 and 2002. In the 2002 period, this total was partially offset by a tax benefit of $2,301,000. Due to the Company's election to be taxed as a REIT, there is no tax benefit for the expense in the 2003 period. The decrease in the distribution amount and amortization of discount and origination costs resulted from the elimination of the distributions and discount and fees on the Non-Convertible Amount, which was repaid on September 30, 2002. Other revenues decreased $4,044,000 from $10,968,000 for the nine months ended September 30, 2002 to $6,924,000 for the nine months ended September 30, 2003. During the nine months ended September 30, 2002, the Company sold investments and reduced the maturity of its fair value hedge, which resulted in a gain of $1,651,000 and earned a $2.0 million fee from the Company's final advisory assignment. On January 1, 2003, the general partner of Fund II (owned by affiliates of the Company and Citigroup) voluntarily reduced by 50% the management fees charged to Fund II for the remainder of the investment period due to a lower than expected level of deployment of the Fund's capital. This, along with the reduction in income when the Company began charging management fees on invested capital for Fund II, partially offset by the management fees charged to Fund III, reduced the Company's management and advisory fees from Funds by $1.8 million for the period. In 2002, Fund I increased its allowance for possible credit losses by establishing a specific reserve for the single non-performing loan it was carrying. The loss from equity investments in Funds during the nine months ended September 30, 2002 was primarily due to this additional expense. Other revenues decreased $3,047,000 from $5,807,000 for the three months ended September 30, 2002 to $2,760,000 for the three months ended September 30, 2003. The decrease in other revenue was primarily the result of a $2.0 million fee earned from the Company's final advisory assignment in 2002 and the decrease in income from equity investments in funds. General and administrative expenses decreased $893,000 to $10,497,000 for the nine months ended September 30, 2003 from $11,390,000 for the nine months ended September 30, 2002 and decreased $178,000 to $3,804,000 for the three months ended September 30, 2003 from $3,982,000 for three months ended September 30, 2002. The decrease in general and administrative expenses was primarily due to reduced employee compensation. The Company employed an average of 25 employees during the nine months ended September 30, 2003 and 27 during the nine months ended September 30, 2002. The Company had 25 full-time employees at September 30, 2003. During the nine months ended September 30, 2002, the Company recaptured $2,963,000 of its previously established allowance for possible credit losses. The Company deemed this recapture necessary due to the substantial reduction in the loan portfolio and a general reduction in the default risk of the loans remaining based upon current conditions. At September 30, 2003, the Company believes that the reserve of $6,672,000 is adequate based on the existing loans in the balance sheet portfolio. The Company intends to make an election to be taxed as a REIT under Section 856(c) of the Internal Revenue Code of 1986, as amended, commencing with the tax year ending December 31, 2003. As a REIT, the Company generally is not subject to federal income tax. To maintain qualification as a REIT, the Company must distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate rates. The Company may also be subject to certain state and local taxes on its income and property. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. At September 30, 2003, the Company was in compliance with all REIT requirements and as such, has only provided for income tax expense on taxable income attributed to its taxable REIT subsidiaries in 2003. Liquidity and Capital Resources - ------------------------------- At September 30, 2003, the Company had $10,179,000 in cash. The primary sources of liquidity for the Company for 2003 will be cash on hand, cash generated from operations, principal and interest payments received on loans and investments and additional borrowings under the Company's credit facilities. The Company believes these sources of capital are adequate to meet future cash requirements. The Company expects that during 2003, it will use a significant amount of its available capital resources to satisfy capital contributions required in connection with Fund III and to originate new loans and investments for its balance sheet. The Company intends to continue to employ leverage on its balance sheet assets to enhance its return on equity. - 19 - The Company experienced a net decrease in cash of $7,000 for the nine months ended September 30, 2003, compared to the net decrease of $2,920,000 for the nine months ended September 30, 2002. Cash provided by operating activities during the nine months ended September 30, 2003 was $10,524,000, compared to $4,630,000 provided during the same period of 2002. For the nine months ended September 30, 2003, cash provided by investing activities was $12,766,000, compared to $255,943,000 during the same period in 2002 as the Company experienced lower levels of loan and investment repayments in the 2003 period than the 2002 period and began making loans for its balance sheet in 2003. The Company utilized the cash received on loan repayments in both years to reduce borrowings under its credit facilities and term redeemable securities contract that along with the proceeds from the private placement of 1,075,000 shares of the Company's Common Stock accounted for the majority of the change in the net cash used in financing activities from $263,493,000 in 2002 to the $23,297,000 in the same period of 2003. During the investment periods for Fund I and Fund II, the Company generally did not originate or acquire loans or CMBS directly for its own balance sheet portfolio. Now that the Fund II investment period has ended, the Company is originating loans and investments for its own account as permitted by the provisions of Fund III. The Company will also use its available working capital to make contributions to Fund III or any other funds as and when required by the equity commitments made by the Company to such funds. If repayments of the Company's existing balance sheet loans and investments increase significantly before excess capital is invested in new funds, or otherwise accretively deployed, the Company may experience a reduction in revenues and lower earnings until offsetting revenues are derived from funds under management or other sources. For the remainder of 2003, the Company does not expect a decrease in total assets, as the Company expects to purchase or originate additional assets during the remainder of the year. At September 30, 2003, the Company has outstanding borrowings under the credit facility of $33,000,000, outstanding borrowings on the term redeemable securities contract of $12,089,000 and outstanding repurchase obligations totaling $146,922,000. The terms of these agreements are described in the Balance Sheet Overview section of this Management Discussion and Analysis. At September 30, 2003, the Company has pledged assets that enable it to borrow an additional $25.3 million and has $230.2 million of credit available for the financing of new and existing unpledged assets pursuant to these facilities. Note on Forward-Looking Statements - ---------------------------------- Except for historical information contained herein, this quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Section 21E of the Securities and Exchange Act of 1934, as amended, which involve certain risks and uncertainties. Forward-looking statements are included with respect to, among other things, the Company's current business plan, business and investment strategy and portfolio management. These forward-looking statements are identified by their use of such terms and phrases as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects," "expect," "expected," "project," "projected," "projections," "plans," "anticipates," "anticipated," "should," "designed to," "foreseeable future," "believe," "believes" and "scheduled" and similar expressions. The Company's actual results or outcomes may differ materially from those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that the Company believes might cause actual results to differ from any results expressed or implied by these forward-looking statements are discussed in the cautionary statements contained in Exhibit 99.1 to this Form 10-Q (filed as Exhibit 99.1 to the Company's Annual Report on Form 10-K, filed on March 28, 2003 and incorporated therein by reference), which are incorporated herein by reference. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form 10-Q. - 20 - ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The principal objective of the Company's asset/liability management activities is to maximize net interest income, while minimizing levels of interest rate risk. Net interest income and interest expense are subject to the risk of interest rate fluctuations. To mitigate the impact of fluctuations in interest rates, the Company uses interest rate swaps to effectively convert fixed rate assets to variable rate assets for proper matching with variable rate liabilities and variable rate liabilities to fixed rate liabilities for proper matching with fixed rate assets. Each derivative used as a hedge is matched with an asset or liability with which it has a high correlation. The swap agreements are generally held-to-maturity and the Company does not use derivative financial instruments for trading purposes. The Company uses interest rate swaps to effectively convert variable rate debt to fixed rate debt for the financed portion of fixed rate assets. The differential to be paid or received on these agreements is recognized as an adjustment to the interest expense related to debt and is recognized on the accrual basis. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates at September 30, 2003. For financial assets and debt obligations, the table presents cash flows to the expected maturity and weighted average interest rates based upon the current carrying values. For interest rate swaps, the table presents notional amounts and weighted average fixed pay and variable receive interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contract. Weighted average variable rates are based on rates in effect as of the reporting date.
Expected Maturity Dates ---------------------------------------------------------------------- 2003 2004 2005 2006 2007 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Assets: (dollars in thousands) Available-for-sale securities Fixed Rate $ 2,145 $ 8,087 $ 5,126 $ 3,012 $ 1,768 $ 2,494 $ 22,632 $ 23,633 Average interest rate 6.04% 6.04% 6.04% 6.04% 6.04% 6.04% 6.04% CMBS Fixed Rate -- -- -- $ 7,811 $ 135 $202,566 $210,512 $155,937 Average interest rate -- -- -- 9.90% 8.19% 11.64% 11.56% Variable Rate -- $ 5,000 -- -- -- -- $ 5,000 $ 5,000 Average interest rate -- 4.07% -- -- -- -- 4.07% Loans receivable Fixed Rate -- -- -- -- $ 24,195 $ 49,078 $ 73,273 $ 84,268 Average interest rate -- -- -- -- 11.78% 11.98% 11.92% Variable Rate $10,968 $ 6,923 $ 12,654 $ 915 $ 14,452 $ 51,835 $ 97,747 $ 96,133 Average interest rate 9.71% 3.02% 6.94% 6.58% 8.92% 7.70% 7.67% Liabilities: Credit Facilities Variable Rate -- -- $ 33,000 -- -- -- $ 33,000 $ 33,000 Average interest rate -- -- 5.59% -- -- -- 5.59% Term redeemable securities contract Variable Rate -- $ 12,089 -- -- -- -- $ 12,089 $ 12,089 Average interest rate -- 6.26% -- -- -- -- 6.26% Repurchase obligations Variable Rate $22,909 $120,053 $ 3,960 -- -- -- $146,922 $146,922 Average interest rate 1.10% 2.99% 2.12% -- -- -- 2.67% Convertible Trust Preferred Securities Fixed Rate -- -- -- $89,742 -- -- $89,742 $ 89,346 Average interest rate -- -- -- 10.58% -- -- 10.58% Interest rate swaps Notional amounts -- -- -- -- -- $109,000 $109,000 $ (838) Average fixed pay rate -- -- -- -- -- 4.24% 4.24% Average variable receive rate -- -- -- -- -- 1.12% 1.12%
- 21 - ITEM 4. Disclosure Controls and Procedures Evaluation of Disclosure Controls and Procedures An evaluation of the effectiveness of the design and operation of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q the Company's disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Controls There was no change in our "internal control over financial reporting" (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. - 22 - PART II. OTHER INFORMATION ITEM 1: Legal Proceedings None ITEM 2: Changes in Securities None ITEM 3: Defaults Upon Senior Securities None ITEM 4: Submission of Matters to a Vote of Security Holders None ITEM 5: Other Information None ITEM 6: Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Consulting Services Agreement, dated as of January 1, 2003, by and between CT Investment Management Co., LLC and Craig M. Hatkoff. 10.2 Master Repurchase Agreement, dated as of May 28, 2003, between Goldman Sachs Mortgage Company and Capital Trust, Inc. 10.3 First Amendment to the Master Repurchase Agreement, dated as of August 26, 2003, between Goldman Sachs Mortgage Company and Capital Trust, Inc. 10.4 Amended and Restated Master Loan and Security Agreement, dated as of June 27, 2003, between Capital Trust, Inc., CT Mezzanine Partners I LLC and Morgan Stanley Mortgage Capital Inc. 11.1 Statements regarding Computation of Earnings per Share (Data required by Statement of Financial Accounting Standard No. 128, Earnings per Share, is provided in Note 11 to the consolidated financial statements contained in this report). 31.1 Certification of John R. Klopp, Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Brian H. Oswald, Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of John R. Klopp, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Brian H. Oswald, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Risk Factors (filed as Exhibit 99.1 to the Company's Annual Report on Form 10-K, filed on March 28, 2003 and incorporated herein by reference). - 23 - (b) Reports on Form 8-K During the fiscal quarter ended September 30, 2003, the Company filed the following Current Reports on Form 8-K: (1) Current Report on Form 8-K, dated August 15, 2003, as filed with the Commission on August 15, 2003, reporting under Item 9 "Regulation FD Disclosure" the Company's issuance of a press release reporting the Company's financial results for its fiscal quarter ended June 30, 2003. - 24 - SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAPITAL TRUST, INC. November 6, 2003 /s/ John R. Klopp - ---------------- ----------------- Date John R. Klopp Chief Executive Officer /s/ Brian H. Oswald ------------------- Brian H. Oswald Chief Financial Officer - 25 - EX-10 3 ex10-1.txt EX. 10.1 - CONSULTING SERVICES AGREEMENT Exhibit 10.1 CONSULTING SERVICES AGREEMENT Consulting Services Agreement ("Agreement"), dated as of January 1, 2003, by and between Craig M. Hatkoff ("Consultant") and CT Investment Management Co., LLC, a Delaware limited liability company (the "Company"). PRELIMINARY STATEMENT WHEREAS, Consultant has previously served as an executive officer of the Capital Trust, Inc. ("CT") and therefore has the training, expertise and prior experience in areas related to the business or needs of CT and the investment funds cosponsored by it, CT Mezzanine Partners II LP, a Delaware limited partnership ("Fund II"), and CT Mezzanine Partners III, Inc., a Maryland Corporation ("Fund III"); WHEREAS, the Company desires to retain the services of Consultant; and WHEREAS, Consultant desires to provide consulting services for the benefit of the Company using his knowledge, skills, experience and abilities; NOW THEREFORE, in consideration of the mutual promises contained herein, and other good and valuable consideration, the parties hereto agree as follows: ARTICLE I SERVICES TO BE PROVIDED Section 1.1 Nature of Services. (a) Consultant shall provide advice and suggestions, and perform such tasks and assignments as requested, orally or in writing, from time to time, by the chief executive officer of the Company. (b) The Consultant shall be designated by the Company and serve as a member of the Management Committee of CT MP II LLC, a Delaware limited liability company which serves as general partner of Fund II and as a member of the board of directors of Fund III. The Company may remove Consultant as a member of the foregoing committee or board for any reason or no reason at any time and the Consultant may resign from such committee or board for any reason or no reason at any time. (c) The Consultant agrees to cooperate at the reasonable request of the Company with any advisory assignments, transactions or litigation or claims involving the Company about which Consultant has knowledge. Said cooperation includes but is not limited to: providing information, reviewing and assisting in the preparation of statements, affidavits or pleadings, giving sworn statements or depositions and testifying in court or at arbitration. The Company will reimburse Consultant for reasonable expenses related to assistance requested by Company. Section 1.2 Right of Control. Consultant shall have exclusive control over the means and manner by which the services called for by this Agreement are performed. Section 1.3 Non-Exclusive Services. Consultant shall devote so much of his productive time, ability and attention as is necessary to performing consulting services as requested or assigned by the Company. Consultant may render services of a business or commercial nature to other persons or entities during the term of this Agreement. ARTICLE II COMPENSATION FOR SERVICES Section 2.1 Fee. As payment and consideration for the services to be provided and promises made herein by Consultant, the Company agrees to pay Consultant the total sum of Ten Thousand Dollars ($10,000) per month ("Fee"). The Fee shall be paid once a month on the last day of the month in which services are provided. Section 2.2 Independent Contractor. Consultant understands and agrees that in performing the services to be provided pursuant to this Agreement, Consultant is acting as an independent contractor with respect to the Company and not as an employee, agent, partner or joint venturer of the Company. Consultant, in his capacity as such, shall be free to undertake other assignments or activities on his own account or on the account of third parties. Consultant agrees and understands that he shall not be authorized to, nor shall he, enter into any commitments, agreements or undertakings or assume any responsibilities on behalf of the Company. Section 2.3 Tax Obligations. Consultant understands and agrees that he is solely responsible for all income and/or other employment tax obligations, if any, including but not limited to all reporting and payment obligations, if any, which may arise as a consequence of any payment under this Agreement. Consultant agrees to indemnify and hold the Company harmless in respect of all such payments claimed or assessed by any taxing authority. Section 2.4 No Benefits. Consultant understands and agrees that since he is not an employee of the Company, he shall not be entitled to, and hereby waives any claim to any of the benefits provided to employees of the Company, including, but not limited to holidays off with pay; vacation time off with pay, paid leaves of absence of any kind; and insurance coverage of any kind, specifically including, but not limited to, medical and dental insurance, unemployment insurance, workers' compensation insurance and state disability insurance. 2 ARTICLE III TERM AND TERMINATION Section 3.1 Effective Date of Agreement. This Agreement shall become effective upon the date hereof. Section 3.2 Term of Agreement. This Agreement shall continue in full force and effect for a period commencing on the date hereof and ending on May 31, 2005. Section 3.3 Termination Prior to Expiration of Term. Either party may terminate this Agreement prior to the expiration of the term hereof for any or no reason on fourteen (14) calendar days' advance written notice to the other party. In the event of such termination, Consultant shall be promptly paid the portion of the monthly Fee owed based on services performed prior to the effective date of termination and no further payment shall be due. Section 3.4 Termination for Cause. The Company also may terminate this Agreement for "Cause" before the expiration of the term hereof without any prior notice whereupon the Company shall have no further obligation to pay any Fee for services performed prior to such Termination and further payment shall be due. "Cause" shall mean (i) any act of theft, fraud or embezzlement, or any other willful misconduct or dishonest behavior by Consultant in connection with the performance of Consultant's services hereunder, (ii) Consultant's continuing and willful failure or refusal to perform the services required under this Agreement (other than due to his incapacity due to illness or injury, (iii) conviction of Consultant for any crime constituting a felony under the laws of the jurisdiction in which such crime was committed, or (iv)Consultant's material breach of the confidentiality provisions of this Agreement. ARTICLE IV PROPRIETARY RIGHTS Section 4.1 Confidential Information. (a) Consultant understands and agrees that during the term of this Agreement, he may become aware of information concerning the operations, budgets, future business plans and methods of doing business on the part of the Company and/or its affiliates, which information is hereby designated "Confidential Information." (b) Consultant understands and agrees that he shall not disclose any Confidential Information directly or indirectly, to anyone outside of the Company, either during the term of this Agreement, or at any time after the expiration or termination hereof, without the prior written consent of the Company. 3 (c) Consultant understands and agrees that he shall be subject to and comply with the Company's insider trading policy in accordance with the terms thereof. Section 4.2 Return of Company Property. Consultant understands and agrees that all written information, documents, and materials prepared by or at the request of the Company, or provided to Consultant, in the course of providing the services called for by this Agreement shall be the sole and exclusive property of the Company and will be delivered to the Company, if requested, on the expiration or termination of this Agreement. ARTICLE V MISCELLANEOUS PROVISIONS Section 5.1 Severability. the provisions of this Agreement are severable, and if any part of it is found to be unenforceable, the other paragraphs shall remain fully valid and enforceable. Section 5.2 Arbitration. This Agreement shall in all respects be interpreted and governed by and under the laws of the State of New York, without regard to principles of conflict of laws. Any dispute regarding any aspect of this Agreement or any act which allegedly has or would violate any provision of this Agreement or any law (hereinafter "Arbitrable Dispute") shall be submitted to arbitration in New York City in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, as the exclusive remedy for any such claim or Arbitrable Dispute. The decision of the arbitrator shall be final, conclusive and binding upon the parties. Each party shall pay the fees of its respective attorneys, the expenses of its witnesses and any other expenses connected with presenting its claim. Other costs of the arbitration, including the fees of the arbitrator, costs of any record or transcript of the arbitration, administrative fees, and other fees and costs shall be borne equally by the parties, one-half by Consultant, on the one hand, and one-half by the Company, on the other hand, provided however, the arbitrator may award the prevailing party its reasonable legal fees and expenses in pursuing such action if the arbitrator finds the non-prevailing party acted in bad faith with gross negligence or without reasonable basis to believe that her/its conduct was in conformity with the terms hereof. Whether or not a party is the prevailing party in any such action shall be determined by the arbitrator. Should any party to this Agreement pursue any Arbitrable Dispute by any method other than said arbitration, the responding party shall be entitled to recover from the initiating party all damages, costs, expenses and attorneys' fees incurred as a result of such action. Section 5.3 Sole and Entire Agreement. This Agreement sets forth the entire agreement between the parties hereto and fully supersedes any and all prior agreements or understandings between the parties hereto, whether written or oral, 4 pertaining to the subject matter hereof. No change in, modification of, or addition, amendment or supplement to this Agreement shall be valid unless set forth in writing. Section 5.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 5 IN WITNESS WHEREOF, the parties hereto executed this Agreement effective as of the date first set forth above. CT INVESTMENT MANAGEMENT CO., LLC By: /s/ John R. Klopp ----------------------------------- Name: John R. Klopp Title: Chief Executive Officer CRAIG M. HATKOFF /s/ Craig M. Hatkoff ------------------------- 6 EX-10 4 ex10-2.txt EX. 10.2 - MASTER REPURCHASE AGREEMENT Exhibit 10.2 Master Repurchase Agreement ---------------------------------------------------------------------------- Bond Market Association September 1996 Version Dated as of: May 28, 2003 ----------- Between: Goldman Sachs Mortgage Company ("Buyer") ------------------------------------------------- and Capital Trust, Inc. ("Seller") ---------------------------------------------------------------------------- 1. Applicability From time to time the parties hereto may enter into transactions in which one party ("Seller") agrees to transfer to the other ("Buyer") securities or other assets ("Securities") against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Securities at a date certain or on demand, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a "Transaction" and, unless otherwise agreed in writing, shall be governed by this Agreement, including any supplemental terms or conditions contained in Annex I hereto and in any other annexes identified herein or therein as applicable hereunder. 2. Definitions (a) "Act of Insolvency", with respect to any party, (i) the commencement by such party as debtor of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, moratorium, dissolution, delinquency or similar law, or such party seeking the appointment or election of a receiver, conservator, trustee, custodian or similar official for such party or any substantial part of its property, or the convening of any meeting of creditors for purposes of commencing any such case or proceeding or seeking such an appointment or election, (ii) the commencement of any such case or proceeding against such party, or another seeking such an appointment or election, or the filing against a party of an application for a protective decree under the provisions of the Securities Investor Protection Act of 1970, which (A) is consented to or not timely contested by such party, (B) results in the entry of an order for relief, such an appointment or election, the issuance of such a protective decree or the entry of an order having a similar effect, or (C) is not dismissed within 15 days, (iii) the making by such party of a general assignment for the benefit of creditors, or (iv) the admission in writing by such party of such party's inability to pay such party's debts as they become due; (b) "Additional Purchased Securities", Securities provided by Seller to Buyer pursuant to Paragraph 4 (a) hereof, (c) "Buyer's Margin Amount", with respect to any Transaction as of any date, the amount obtained by application of the Buyer's Margin Percentage to the Repurchase Price for such Transaction as of such date; (d) "Buyer's Margin Percentage", with respect to any Transaction as of any date, a percentage (which may be equal to the Seller's Margin Percentage) agreed to by Buyer and Seller or, in the absence of any such agreement, the percentage obtained by 1 dividing the Market Value of the Purchased Securities on the Purchase Date by the Purchase Price on the Purchase Date for such Transaction; (e) "Confirmation", the meaning specified in Paragraph 3(b) hereof; (f) "Income", with respect to any Security at any time, any principal thereof and all interest, dividends or other distributions thereon; (g) "Margin Deficit", the meaning specified in Paragraph 4(a) hereof; (h) "Margin Excess", the meaning specified in Paragraph 4(b) hereof; (i) "Margin Notice Deadline", the time agreed to by the parties in the relevant Confirmation, Annex I hereto or otherwise as the deadline for giving notice requiring same-day satisfaction of margin maintenance obligations as provided in Paragraph 4 hereof (or, in the absence of any such agreement, the deadline for such purposes established in accordance with market practice); (j) "Market Value", with respect to any Securities as of any date, the price for such Securities on such date obtained from a generally recognized source agreed to by the parties or the most recent closing bid quotation from such a source, plus accrued Income to the extent not included therein (other than any Income credited or transferred to, or applied to the obligations of, Seller pursuant to Paragraph 5 hereof) as of such date (unless contrary to market practice for such Securities); (k) "Price Differential", with respect to any Transaction as of any date, the aggregate amount obtained by daily application of the Pricing Rate for such Transaction to the Purchase Price for such Transaction on a 360 day per year basis for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the date of determination (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction); (1) "Pricing Rate", the per annum percentage rate for determination of the Price Differential; (m) "Prime Rate", the prime rate of U.S. commercial banks as published in The Wall Street Journal (or, if more than one such rate is published, the average of such rates); (n) "Purchase Date", the date on which Purchased Securities are to be transferred by Seller to Buyer; (o) "Purchase Price", (i) on the Purchase Date, the price at which Purchased Securities are transferred by Seller to Buyer, and (ii) thereafter, except where Buyer and Seller agree otherwise, such price increased by the amount of any cash transferred by Buyer to Seller pursuant to Paragraph 4(b) hereof and decreased by the amount of any cash transferred by Seller to Buyer pursuant to Paragraph 4(a) hereof or applied to reduce Seller's obligations under clause (ii) of Paragraph 5 hereof; (p) "Purchased Securities", the Securities transferred by Seller to Buyer in a Transaction hereunder, and any Securities substituted therefor in accordance with Paragraph 9 hereof. The term "Purchased Securities" with respect to any Transaction at any time 2 also shall include Additional Purchased Securities delivered pursuant to Paragraph 4(a) hereof and shall exclude Securities returned pursuant to Paragraph 4(b) hereof; (q) "Repurchase Date", the date on which Seller is to repurchase the Purchased Securities from Buyer, including any date determined by application of the provisions of Paragraph 3(c) or 11 hereof; (r) "Repurchase Price", the price at which Purchased Securities are to be transferred from Buyer to Seller upon termination of a Transaction, which will be determined in each case (including Transactions terminable upon demand) as the sum of the Purchase Price and the Price Differential as of the date of such determination; (s) "Seller's Margin Amount", with respect to any Transaction as of any date, the amount obtained by application of the Seller's Margin Percentage to the Repurchase Price for such Transaction as of such date; (t) "Seller's Margin Percentage", with respect to any Transaction as of any date, a percentage (which may be equal to the Buyer's Margin Percentage) agreed to by Buyer and Seller or, in the absence of any such agreement, the percentage obtained by dividing the Market Value of the Purchased Securities on the Purchase Date by the Purchase Price on the Purchase Date for such Transaction. 3. Initiation; Confirmation; Termination (a) An agreement to enter into a Transaction may be made orally or in writing at the initiation of either Buyer or Seller. On the Purchase Date for the Transaction, the Purchased Securities shall be transferred to Buyer or its agent against the transfer of the Purchase Price to an account of Seller. (b) Upon agreeing to enter into a Transaction hereunder, Buyer or Seller (or both), as shall be agreed, shall promptly deliver to the other party a written confirmation of each Transaction (a "Confirmation"). The Confirmation shall describe the Purchased Securities (including CUSIP number, if any), identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, unless the Transaction is to be terminable on demand, (iv) the Pricing Rate or Repurchase Price applicable to the Transaction, and (v) any additional terms or conditions of the Transaction not inconsistent with this Agreement. The Confirmation, together with this Agreement, shall constitute conclusive evidence of the terms agreed between Buyer and Seller with respect to the Transaction to which the Confirmation relates, unless with respect to the Confirmation specific objection is made promptly after receipt thereof. In the event of any conflict between the terms of such Confirmation and this Agreement, this Agreement shall prevail. (c) In the case of Transactions terminable upon demand, such demand shall be made by Buyer or Seller, no later than such time as is customary in accordance with market practice, by telephone or otherwise on or prior to the business day on which such termination will be effective. On the date specified in such demand, or on the date fixed for termination in the case of Transactions having a fixed term, termination of the Transaction will be effected by transfer to Seller or its agent of the Purchased Securities and any Income in respect thereof received by Buyer (and not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Paragraph 5 hereof) against the transfer of the Repurchase Price to an account of Buyer. 3 4. Margin Maintenance (a) If at any time the aggregate Market Value of all Purchased Securities subject to all Transactions in which a particular party hereto is acting as Buyer is less than the aggregate Buyer's Margin Amount for all such Transactions (a "Margin Deficit"), then Buyer may by notice to Seller require Seller in such Transactions, at Seller's option, to transfer to Buyer cash or additional Securities reasonably acceptable to Buyer ("Additional Purchased Securities"), so that the cash and aggregate Market Value of the Purchased Securities, including any such Additional Purchased Securities, will thereupon equal or exceed such aggregate Buyer's Margin Amount (decreased by the amount of any Margin Deficit as of such date arising from any Transactions in which such Buyer is acting as Seller). (b) If at any time the aggregate Market Value of all Purchased Securities subject to all Transactions in which a particular party hereto is acting as Seller exceeds the aggregate Seller's Margin Amount for all such Transactions at such time (a "Margin Excess"), then Seller may by notice to Buyer require Buyer in such Transactions, at Buyer's option, to transfer cash or Purchased Securities to Seller, so that the aggregate Market Value of the Purchased Securities, after deduction of any such cash or any Purchased Securities so transferred, will thereupon not exceed such aggregate Seller's Margin Amount (increased by the amount of any Margin Excess as of such date arising from any Transactions in which such Seller is acting as Buyer). (c) If any notice is given by Buyer or Seller under subparagraph (a) or (b) of this Paragraph at or before the Margin Notice Deadline on any business day, the party receiving such notice shall transfer cash or Additional Purchased Securities as provided in such subparagraph no later than the close of business in the relevant market on such day. If any such notice is given after the Margin Notice Deadline, the party receiving such notice shall transfer such cash or Securities no later than the close of business in the relevant market on the next business day following such notice. (d) Any cash transferred pursuant to this Paragraph shall be attributed to such Transactions as shall be agreed upon by Buyer and Seller. (e) Seller and Buyer may agree, with respect to any or all Transactions hereunder, that the respective rights of Buyer or Seller (or both) under subparagraphs (a) and (b) of this Paragraph may be exercised only where a Margin Deficit or Margin Excess, as the case may be, exceeds a specified dollar amount or a specified percentage of the Repurchase Prices for such Transactions (which amount or percentage shall be agreed to by Buyer and Seller prior to entering into any such Transactions). (f) Seller and Buyer may agree, with respect to any or all Transactions hereunder, that the respective rights of Buyer and Seller under subparagraphs (a) and (b) of this Paragraph to require the elimination of a Margin Deficit or a Margin Excess, as the case may be, may be exercised whenever such a Margin Deficit or Margin Excess exists with respect to any single Transaction hereunder (calculated without regard to any other Transaction outstanding under this Agreement). 5. Income Payments Seller shall be entitled to receive an amount equal to all Income paid or distributed on or in respect of the Securities that is not otherwise received by Seller, to the full extent it would be so entitled if the Securities had not been sold to Buyer. Buyer shall, as the parties may agree with respect to any Transaction (or, in the absence of any such agreement, as Buyer shall reasonably determine in its discretion), on the date such Income is paid or distributed 4 either (i) transfer to or credit to the account of Seller such Income with respect to any Purchased Securities subject to such Transaction or (ii) with respect to Income paid in cash, apply the Income payment or payments to reduce the amount, if any, to be transferred to Buyer by Seller upon termination of such Transaction. Buyer shall not be obligated to take any action pursuant to the preceding sentence (A) to the extent that such action would result in the creation of a Margin Deficit, unless prior thereto or simultaneously therewith Seller transfers to Buyer cash or Additional Purchased Securities sufficient to eliminate such Margin Deficit, or (B) if an Event of Default with respect to Seller has occurred and is then continuing at the time such Income is paid or distributed. 6. Security Interest Although the parties intend that all Transactions hereunder be sales and purchases and not loans, in the event any such Transactions are deemed to be loans, Seller shall be deemed to have pledged to Buyer as security for the performance by Seller of its obligations under each such Transaction, and shall be deemed to have granted to Buyer a security interest in, all of the Purchased Securities with respect to all Transactions hereunder and all Income thereon and other proceeds thereof. 7. Payment and Transfer Unless otherwise mutually agreed, all transfers of funds hereunder shall be in immediately available funds. All Securities transferred by one party hereto to the other party (i) shall be in suitable form for transfer or shall be accompanied by duly executed instruments of transfer or assignment in blank and such other documentation as the party receiving possession may reasonably request, (ii) shall be transferred on the book-entry system of a Federal Reserve Bank, or (iii) shall be transferred by any other method mutually acceptable to Seller and Buyer. 8. Segregation of Purchased Securities To the extent required by applicable law, all Purchased Securities in the possession of Seller shall be segregated from other securities in its possession and shall be identified as subject to this Agreement. Segregation may be accomplished by appropriate identification on the books and records of the holder, including a financial or securities intermediary or a clearing corporation. All of Seller's interest in the Purchased Securities shall pass to Buyer on the Purchase Date and, unless otherwise agreed by Buyer and Seller, nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Purchased Securities or otherwise selling, transferring, pledging or hypothecating the Purchased Securities, but no such transaction shall relieve Buyer of its obligations to transfer Purchased Securities to Seller pursuant to Paragraph 3, 4 or 11 hereof, or of Buyer's obligation to credit or pay Income to, or apply Income to the obligations of, Seller pursuant to Paragraph 5 hereof. - -------------------------------------------------------------------------------- Required Disclosure for Transactions in Which the Seller Retains Custody of the Purchased Securities Seller is not permitted to substitute other securities for those subject to this Agreement and therefore must keep Buyer's securities segregated at all times unless in this Agreement Buyer grants Seller the right to substitute other securities. If Buyer grants the right to substitute, this means that Buyer's securities will likely be commingled with Seller's own securities during the trading day. Buyer is advised that during any trading day that Buyer's securities are commingled with Seller's securities, they [will]* [may]** be subject to liens granted by Seller to [its clearing bank]* [third parties]" and may be used by Seller for deliveries on other securities transactions. Whenever the securities are commingled, Seller's ability to resegregate substitute - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- securities for Buyer will be subject to Seller's ability to satisfy [the clearing] * [any]** lien or to obtain substitute securities. - -------------------------------------------------------------------------------- * Language to be used under 17 C.F.R, Section 403.4 (e) if Seller is a government securities broker or dealer other than a financial institution. ** Language to be used under 17 C.F.R. Section 403.5 (d) if Seller is a financial institution. 9. Substitution (a) Seller may, subject to agreement with and acceptance by Buyer, substitute other Securities for any Purchased Securities. Such substitution shall be made by transfer to Buyer of such other Securities and transfer to Seller of such Purchased Securities. After substitution, the substituted Securities shall be deemed to be Purchased Securities. (b) In Transactions in which Seller retains custody of Purchased Securities, the parties expressly agree that Buyer shall be deemed, for purposes of subparagraph (a) of this Paragraph, to have agreed to and accepted in this Agreement substitution by Seller of other Securities for Purchased Securities; provided, however, that such other Securities shall have a Market Value at least equal to the Market Value of the Purchased Securities for which they are substituted. 10. Representations Each of Buyer and Seller represents and warrants to the other that (i) it is duly authorized to execute and deliver this Agreement, to enter into Transactions contemplated hereunder and to perform its obligations hereunder and has taken all necessary action to authorize such execution, delivery and performance, (ii) it will engage in such Transactions as principal (or, if agreed in writing, in the form of an annex hereto or otherwise, in advance of any Transaction by the other party hereto, as agent for a disclosed principal), (iii) the person signing this Agreement on its behalf is duly authorized to do so on its behalf (or on behalf of any such disclosed principal), (iv) it has obtained all authorizations of any governmental body required in connection with this Agreement and the Transactions hereunder and such authorizations are in full force and effect and (v) the execution, delivery and performance of this Agreement and the Transactions hereunder will not violate any law, ordinance, charter, bylaw or rule applicable to it or any agreement by which it is bound or by which any of its assets are affected. On the Purchase Date for any Transaction Buyer and Seller shall each be deemed to repeat all the foregoing representations made by it. 11. Events of Default In the event that (i) Seller fails to transfer or Buyer fails to purchase Purchased Securities upon the applicable Purchase Date, (ii) Seller fails to repurchase or Buyer fails to transfer Purchased Securities upon the applicable Repurchase Date, (iii) Seller or Buyer fails to comply with Paragraph 4 hereof, (iv) Buyer fails, after one business day's notice, to comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with respect to Seller or Buyer, (vi) any representation made by Seller or Buyer shall have been incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated, or (vii) Seller or Buyer shall admit to the other its inability to, or its intention not to, perform any of its obligations hereunder (each an "Event of Default"): (a) The nondefaulting party may, at its option (which option shall be deemed to have been exercised immediately upon the occurrence of an Act of Insolvency), declare an Event of Default to have occurred hereunder and, upon the exercise or deemed exercise of 6 such option, the Repurchase Date for each Transaction hereunder shall, if it has not already occurred, be deemed immediately to occur (except that, in the event that the Purchase Date for any Transaction has not yet occurred as of the date of such exercise or deemed exercise, such Transaction shall be deemed immediately canceled). The nondefaulting party shall (except upon the occurrence of an Act of Insolvency) give notice to the defaulting party of the exercise of such option as promptly as practicable. (b) In all Transactions in which the defaulting party is acting as Seller, if the nondefaulting party exercises or is deemed to have exercised the option referred to in subparagraph (a) of this Paragraph, (i) the defaulting party's obligations in such Transactions to repurchase all Purchased Securities, at the Repurchase Price therefor on the Repurchase Date determined in accordance with subparagraph (a) of this Paragraph, shall thereupon become immediately due and payable, (ii) all Income paid after such exercise or deemed exercise shall be retained by the nondefaulting party and applied to the aggregate unpaid Repurchase Prices and any other amounts owing by the defaulting party hereunder, and (iii) the defaulting party shall immediately deliver to the nondefaulting party any Purchased Securities subject to such Transactions then in the defaulting party's possession or control. (c) In all Transactions in which the defaulting party is acting as Buyer, upon tender by the nondefaulting party of payment of the aggregate Repurchase Prices for all such Transactions, all right, title and interest in and entitlement to all Purchased Securities subject to such Transactions shall be deemed transferred to the nondefaulting party, and the defaulting party shall deliver all such Purchased Securities to the nondefaulting party. (d) If the nondefaulting party exercises or is deemed to have exercised the option referred to in subparagraph (a) of this Paragraph, the nondefaulting party, without prior notice to the defaulting party, may: (i) as to Transactions in which the defaulting party is acting as Seller, (A) immediately sell, in a recognized market (or otherwise in a commercially reasonable manner) at such price or prices as the nondefaulting party may reasonably deem satisfactory, any or all Purchased Securities subject to such Transactions and apply the proceeds thereof to the aggregate unpaid Repurchase Prices and any other amounts owing by the defaulting party hereunder or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Securities, to give the defaulting party credit for such Purchased Securities in an amount equal to the price therefor on such date, obtained from a generally recognized source or the most recent closing bid quotation from such a source, against the aggregate unpaid Repurchase Prices and any other amounts owing by the defaulting party hereunder; and (ii) as to Transactions in which the defaulting party is acting as Buyer, (A) immediately purchase, in a recognized market (or otherwise in a commercially reasonable manner) at such price or prices as the nondefaulting party may reasonably deem satisfactory, securities ("Replacement Securities") of the same class and amount as any Purchased Securities that are not delivered by the defaulting party to the nondefaulting party as required hereunder or (B) in its sole discretion elect, in lieu of purchasing Replacement Securities, to be deemed to have purchased Replacement Securities at the price therefor on such date, obtained from a generally recognized source or the most recent closing offer quotation from such a source. 7 Unless otherwise provided in Annex 1, the parties acknowledge and agree that (1) the Securities subject to any Transaction hereunder are instruments traded in a recognized market, (2) in the absence of a generally recognized source for prices or bid or offer quotations for any Security, the nondefaulting party may establish the source therefor in its sole discretion and (3) all prices, bids and offers shall be determined together with accrued Income (except to the extent contrary to market practice with respect to the relevant Securities). (e) As to Transactions in which the defaulting party is acting as Buyer, the defaulting party shall be liable to the nondefaulting party for any excess of the price paid (or deemed paid) by the nondefaulting party for Replacement Securities over the Repurchase Price for the Purchased Securities replaced thereby and for any amounts payable by the defaulting party under Paragraph 5 hereof or otherwise hereunder. (f) For purposes of this Paragraph 11, the Repurchase Price for each Transaction hereunder in respect of which the defaulting party is acting as Buyer shall not increase above the amount of such Repurchase Price for such Transaction determined as of the date of the exercise or deemed exercise by the nondefaulting party of the option referred to in subparagraph (a) of this Paragraph. (g) The defaulting party shall be liable to the nondefaulting party for (i) the amount of all reasonable legal or other expenses incurred by the nondefaulting party in connection with or as a result of an Event of Default, (ii) damages in an amount equal to the cost (including all fees, expenses and commissions) of entering into replacement transactions and entering into or terminating hedge transactions in connection with or as a result of an Event of Default, and (iii) any other loss, damage, cost or expense directly arising or resulting from the occurrence of an Event of Default in respect of a Transaction. (h) To the extent permitted by applicable law, the defaulting party shall be liable to the nondefaulting party for interest on any amounts owing by the defaulting party hereunder, from the date the defaulting party becomes liable for such amounts hereunder until such amounts are (i) paid in full by the defaulting party or (ii) satisfied in full by the exercise of the nondefaulting party's rights hereunder. Interest on any sum payable by the defaulting party to the nondefaulting party under this Paragraph 11(h) shall be at a rate equal to the greater of the Pricing Rate for the relevant Transaction or the Prime Rate. (i) The nondefaulting party shall have, in addition to its rights hereunder, any rights otherwise available to it under any other agreement or applicable law. 12. Single Agreement Buyer and Seller acknowledge that, and have entered hereinto and will enter into each Transaction hereunder in consideration of and in reliance upon the fact that, all Transactions hereunder constitute a single business and contractual relationship and have been made in consideration of each other. Accordingly, each of Buyer and Seller agrees (i) to perform all of its obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set off claims and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transactions hereunder and (iii) that payments, deliveries and other transfers made by either of them in respect of any Transaction shall be deemed to have 8 been made in consideration of payments, deliveries and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries and other transfers may be applied against each other and netted. 13. Notices and Other Communications Any and all notices, statements, demands or other communications hereunder may be given by a party to the other by mail, facsimile, telegraph, messenger or otherwise to the address specified in Annex 11 hereto, or so sent to such party at any other place specified in a notice of change of address hereafter received by the other. All notices, demands and requests hereunder may be made orally, to be confirmed promptly in writing, or by other communication as specified in the preceding sentence. 14. Entire Agreement; Severability This Agreement shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement. 15. Non-assignability; Termination (a) The rights and obligations of the parties under this Agreement and under any Transaction shall not be assigned by either party without the prior written consent of the other party, and any such assignment without the prior written consent of the other party shall be null and void. Subject to the foregoing, this Agreement and any Transactions shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. This Agreement may be terminated by either party upon giving written notice to the other, except that this Agreement shall, notwithstanding such notice, remain applicable to any Transactions then outstanding. (b) Subparagraph (a) of this Paragraph 15 shall not preclude a party from assigning, charging or otherwise dealing with all or any part of its interest in any sum payable to it under Paragraph 11 hereof. 16. Governing Law This Agreement shall be governed by the laws of the State of New York without giving effect to the conflict of law principles thereof. 17. No Waivers, Etc. No express or implied waiver of any Event of Default by either party shall constitute a waiver of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute a waiver of its right to exercise any other remedy hereunder. No modification or waiver of any provision of this Agreement and no consent by any party to a departure herefrom shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto. Without limitation on an of the foregoing, the failure to give a notice pursuant to Paragraph 4(a) or 4(b) hereof will not constitute a waiver of any right to do so at a later date. 18. Use of Employee Plan Assets (a) If assets of an employee benefit plan subject to any provision of the Employee Retirement Income Security Act of 1974 ("ERISA) are intended to be used by either party hereto (the "Plan Party") in a Transaction, the Plan Party shall so notify the other party prior to the Transaction. The Plan Party shall represent in writing to the other party that the Transaction does not constitute a prohibited transaction under ERISA or 9 is otherwise exempt therefrom, and the other party may proceed in reliance thereon but shall not be required so to proceed. (b) Subject to the last sentence of subparagraph (a) of this Paragraph, any such Transaction shall proceed only if Seller furnishes or has furnished to Buyer its most recent available audited statement of its financial condition and its most recent subsequent unaudited statement of its financial condition. (c) By entering into a Transaction pursuant to this Paragraph, Seller shall be deemed (i) to represent to Buyer that since the date of Seller's latest such financial statements, there has been no material adverse change in Seller's financial condition which Seller has not disclosed to Buyer, and (ii) to agree to provide Buyer with future audited and unaudited statements of its financial condition as they are issued, so long as it is a Seller in any outstanding Transaction involving a Plan Party. 19. Intent (a) The parties recognize that each Transaction is a "repurchase agreement" as that term is defined in Section 101 of Title 11 of the United States Code, as amended (except insofar as the type of Securities subject to such Transaction or the term of such Transaction would render such definition inapplicable), and a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended (except insofar as the type of assets subject to such Transaction would render such definition inapplicable). (b) It is understood that either party's right to liquidate Securities delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Paragraph 11 hereof is a contractual right to liquidate such Transaction as described in Sections 555 and 559 of Title 11 of the United States Code, as amended. (c) The parties agree and acknowledge that if a party hereto is an "insured depository institution," as such term is defined in the Federal Deposit Insurance Act, as amended ("FDIA"), then each Transaction hereunder is a "qualified financial contract," as that term is defined in FDIA and any rules, orders or policy statements thereunder (except insofar as the type of assets subject to such Transaction would render such definition inapplicable). (d) It is understood that this Agreement constitutes a "netting contract" as defined in and subject to Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and each payment entitlement and payment obligation under any Transaction hereunder shall constitute a "covered contractual payment entitlement" or 11 "covered contractual payment obligation", respectively, as defined in and subject to FDICIA (except insofar as one or both of the parties is not a "financial institution" as that term is defined in FDICIA). 20. Disclosure Relating to Certain Federal Protections The parties acknowledge that they have been advised that: (a) in the case of Transactions in which one of the parties is a broker or dealer registered with the Securities and Exchange Commission ("SEC") under Section 15 of the Securities Exchange Act of 1934 ("1934 Act"), the Securities Investor Protection Corporation has taken the position that the provisions of the Securities Investor Protection Act of 1970 ("SIPA") do not protect the other party with respect to any Transaction hereunder; 10 (b) in the case of Transactions in which one of the parties is a government securities broker or a government securities dealer registered with the SEC under Section 15C of the 1934 Act, SIPA will not provide protection to the other party with respect to any Transaction hereunder; and (c) in the case of Transactions in which one of the parties is a financial institution, funds held by the financial institution pursuant to a Transaction hereunder are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, as applicable. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] 11 CAPITAL TRUST, INC., /s/ Brian H. Oswald - ------------------------- Name: Brian H. Oswald Title: Chief Financial Officer Date: May 28, 2003 GOLDMAN SACHS MORTGAGE COMPANY, By: Goldman Sachs Real Estate Funding Corp., its general partner By: /s/ Daniel Sparks ----------------- Name: Daniel Sparks Title: Vice President Date: May 28, 2003 ANNEX I to MASTER REPURCHASE AGREEMENT 1. APPLICABILITY .........................................................1 2. DEFINITIONS............................................................1 3. INITIATION; CONFIRMATION; TERMINATION; FEES...........................18 4. MANDATORY PAYMENT OR DELIVERY OF ADDITIONAL ASSETS ...................25 5. INCOME PAYMENTS AND PRINCIPAL PAYMENTS................................26 6. SECURITY INTEREST.....................................................27 7. PAYMENT, TRANSFER AND CUSTODY.........................................28 8. CERTAIN RIGHTS OF BUYER WITH RESPECT TO THE LOANS.....................35 9. SUBSTITUTION..........................................................36 10. REPRESENTATIONS.......................................................36 11. NEGATIVE COVENANTS OF SELLER..........................................40 12. AFFIRMATIVE COVENANTS OF SELLER.......................................41 13. [NTENTIONALLY OMITTED]................................................44 14. EVENTS OF DEFAULT; REMEDIES...........................................46 15. [INTENTIONALLY OMITTED.]..............................................51 16. NOTICES AND OTHER COMMUNICATIONS......................................51 17. NON-ASSIGNABILITY.....................................................52 18. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.........................52 19. NO RELIANCE; DISCLAIMERS..............................................53 20. INDEMNITY AND EXPENSES................................................53 21. DUE DILIGENCE.........................................................54 22. SERVICING.............................................................55 23. TREATMENT FOR TAX PURPOSES............................................56 24. INTENT................................................................56 25. SINGLE AGREEMENT......................................................56 26. MISCELLANEOUS.........................................................56 SCHEDULE 1 Purchase Percentages And Applicable Spreads.................1-1 SCHEDULE 2 Initial Portfolio Loans.....................................2-1 SCHEDULE 3 Purchased Loan Information..................................3-1 SCHEDULE 4 Approved Appraisers.........................................4-1 SCHEDULE 5 Approved Engineers..........................................5-1 SCHEDULE 6 Approved Environmental Consultants..........................6-1 SCHEDULE 7-A Form of UCC Financing Statement...........................7-A-1 i SCHEDULE 7-B Form of UCC Financing Statement Amendment.................7-B-1 ii EXHIBITS - -------- EXHIBIT I Form of Confirmation EXHIBIT II Authorized Representatives of Seller EXHIBIT III Form of Custodial Delivery Certificate EXHIBIT IV-1 Form of Power of Attorney to Buyer EXHIBIT IV-2 Form of Power of Attorney to Seller EXHIBIT V Representations and Warranties Regarding Purchased Loans EXHIBIT VI Form of Blocked Account Agreement EXHIBIT VII Form of Direction Letter EXHIBIT VIII Form of Bailee Agreement iii Supplemental Terms and Conditions --------------------------------- This Annex I forms a part of the Master Repurchase Agreement dated as of May 28, 2003 between Capital Trust, Inc., as seller, and Goldman Sachs Mortgage Company, as buyer (together with Annex I, the "Agreement"). Capitalized terms used in this Annex I without definition shall have the respective meanings assigned to such terms in the Agreement. This Annex I is intended to supplement the Agreement and shall, wherever possible, be interpreted so as to be consistent with the Agreement; however, in the event of any conflict or inconsistency between the provisions of this Annex I, on the one hand, and the provisions of the Agreement, on the other, the provisions of this Annex I shall govern and control. All references in the Agreement and in this Annex I to "the Agreement" shall be deemed to mean and refer to the Agreement, as supplemented and modified by this Annex I or as otherwise modified after the date hereof. 1. APPLICABILITY; OTHER APPLICABLE ANNEXES (a) Paragraph 1 of the Agreement ("Applicability") is hereby deleted and replaced with the following: From time to time the parties hereto may enter into transactions in which Seller agrees to transfer to Buyer one or more Mezzanine Loans, Second Mortgage Loans, First Mortgage B-Notes or Other Mezzanine Investments against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such loans or investments at a date certain (or such earlier date, in accordance with the terms hereof), against the transfer of funds by Seller. Each such transaction shall be referred to herein as a "Transaction" and, unless otherwise agreed in writing, shall be governed by the Agreement, including any supplemental terms or conditions contained in this Annex I and in any other annexes identified herein or therein as applicable hereunder. (b) In addition to this Annex I and the Schedules hereto, the following Annexes and any Schedules thereto shall form a part of the Agreement and shall be applicable thereunder: Annex II - Names and Addresses for Communications Between Parties. 2. ADDITIONAL AND SUBSTITUTE DEFINITIONS (a) The following capitalized terms in Paragraph 2 of the Agreement ("Definitions") are hereby deleted in their entirety: (i) "Additional Purchased Securities"; (ii) "Buyer's Margin Amount"; (iii) "Buyer's Margin Percentage"; (iv) "Margin Notice Deadline"; (v) "Prime Rate"; (vi) "Purchased Securities"; (vii) "Seller's Margin Amount"; and 1 (viii) "Seller's Margin Percentage". (b) The following capitalized terms shall have the respective meanings set forth below, in lieu of the meanings for such terms set forth in Paragraph 2 of the Agreement ("Definitions"): "Act of Insolvency" shall mean, with respect to any party, (i) the commencement by such party as debtor of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, moratorium, dissolution, delinquency or similar law, or such party seeking the appointment or election of a receiver, conservator, trustee, custodian or similar official for such party or any substantial part of its property, or the convening of any meeting of creditors for purposes of commencing any such case or proceeding or seeking such an appointment or election, (ii) the making by such party of a general assignment for the benefit of creditors, or (iii) the admission in writing by such party of such party's inability to pay such party's debts as they become due. "Confirmation" shall have the meaning specified in Section 3(d) of this Annex I. "Income" shall mean, with respect to any Purchased Loan at any time, any payment or other cash distribution thereon of principal, interest, dividends, fees, reimbursements or proceeds or other cash distributions thereon (including casualty or condemnation proceeds). "Margin Deficit" shall have the meaning specified in Section 4(a) of this Annex I. "Margin Excess" shall have the meaning specified in Section 4(c) of this Annex I. "Market Value" shall mean, with respect to any Purchased Loan as of any relevant date, the lesser of (x) market value of such Purchased Loan on such date, as determined by Buyer in its good faith but sole discretion, and (y) the par amount of such Purchased Loan. For purposes of Buyer's determination, (i) the Market Value may be determined by reference to an Appraisal, discounted cash flow analysis or other method (which method shall be selected by Buyer in good faith), (ii) any amounts or claims secured by related Eligible Property or Properties ranking senior to or pari passu with the lien of the Purchased Loan may be deducted from the Market Value of the Purchased Loan, (iii) the Market Value of any Defaulted Loan shall be zero (unless Buyer otherwise specifies), (iv) Buyer may consider the representations and warranties set forth in Exhibit V (including a breach thereof), and exceptions thereto in its determination of the Market Value of the Purchased Loans and (iv) for the avoidance of doubt, Buyer may reduce Market Value for any actual or potential risks (including risk of delay) posed by any liens or claims on the related Eligible Property or Properties. Seller shall cooperate with Buyer in its determination of the Market Value of each item of underlying collateral (including, without limitation, providing all information and documentation in the possession of Seller regarding such item of underlying collateral or otherwise required by Buyer in its commercially reasonable judgment). "Pricing Rate" shall mean, for any Purchased Loan and any Pricing Rate Period, an annual rate equal to the LIBO Rate for such Pricing Rate Period plus the Applicable Spread for the applicable Loan Type and shall be subject to adjustment and/or conversion as provided in Sections 3(j) and 3(k) of this Annex I. 2 "Purchase Price" shall mean, with respect to any Purchased Loan the price at which such Purchased Loan is transferred by Seller to Buyer on the applicable Purchase Date. The Purchase Price as of any Purchase Date for any Purchased Loan of a particular Loan Type shall be an amount (expressed in dollars) equal to the product obtained by multiplying (i) the Market Value of such Purchased Loan (or the par amount of such Purchased Loan, if lower than the Market Value) by (ii) the Purchase Percentage for the related Loan Type. "Purchase Date" shall mean with respect to any Purchased Loan, the date on which such Purchased Loan is transferred by Seller to Buyer. "Repurchase Date" with respect to any Purchased Loan shall mean the Facility Termination Date or such earlier date specified in the related Confirmation, or if applicable, the related Early Repurchase Date or Accelerated Repurchase Date. "Repurchase Price" shall mean, with respect to any Purchased Loan as of any date, the price at which such Purchased Loan is to be transferred from Buyer to Seller upon termination of the related Transaction; such price will be determined in each case as the sum of the Purchase Price of such Purchased Loan and the accrued Price Differential with respect to such Purchased Loan as of the date of such determination, minus all Income and cash actually received by Buyer in respect of such Transaction and applied towards the Repurchase Price and/or Price Differential pursuant to Sections 3(i), 3(j), 4(a), 4(c),5(b), 5(c), 5(d) and 5(e) of this Annex I. (c) In addition to the terms defined in Paragraph 2 of the Agreement ("Definitions") not otherwise deleted pursuant to Section 2(a) of this Annex I and the terms defined in Section 2(b) of this Annex I, the following capitalized terms shall have the respective meanings set forth below: "Accelerated Repurchase Date" shall have the meaning specified in Section 14(c)(i) of this Annex I. "Accepted Servicing Practices" shall mean with respect to any Purchased Loan, in conformity with those accepted and prudent servicing practices in the industry for loans of the same type and in a manner at least equal in quality to the servicing the applicable servicer provides for assets similar to such Purchased Loans which it owns. "Affiliate" shall mean, when used with respect to any specified Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. Control shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise and "controlling" and "controlled" shall have meanings correlative thereto. "Agreement" shall have the meaning specified in the introductory paragraph of this Annex I. "Alternative Rate" shall have the meaning specified in Section 3(m) of this Annex I. "Alternative Rate Transaction" shall mean, with respect to any Pricing Rate Period, any Transaction with respect to which the Pricing Rate for such Pricing Rate Period is determined with reference to the Alternative Rate. 3 "Applicable Spread" shall mean, with respect to a Purchased Loan, (i) so long as no Event of Default shall have occurred and be continuing, the per annum rate specified in Schedule 1 attached hereto as being the "Applicable Spread" for the Purchased Loans in such Loan Type, and (ii) after the occurrence and during the continuance of an Event of Default, the applicable per annum rate described in clause (i) of this definition, plus 400 basis points (4.0%). "Appraisal" shall mean an appraisal of any Eligible Property prepared by a licensed appraiser listed on Schedule 4 attached hereto, as such schedule may be amended from time to time by Seller or Buyer upon approval by Buyer in its reasonable discretion, in accordance with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation, in compliance with the requirements of Title 11 of the Financial Institution Reform, Recovery and Enforcement Act and utilizing customary valuation methods such as the income, sales/market or cost approaches, as any of the same may be updated by recertification from time to time by the appraiser performing such Appraisal. "Asset Base" shall mean, as of any date of determination, the aggregate Asset Base Components of all Purchased Loans transferred by the Seller to the Buyer hereunder. "Asset Base Component" shall mean, with respect to each Purchased Loan, the product of its Market Value multiplied by the Purchase Percentage applicable to such Purchased Loan. "Assignment of Leases" shall mean, with respect to any Purchased Loan which is a mortgage loan, any assignment of leases, rents and profits or equivalent instrument, whether contained in the related Mortgage or executed separately, assigning to the holder or holders of such Mortgage all of the related Mortgagor's interest in the leases, rents and profits derived from the ownership, operation, leasing or disposition of all or a portion of the related Mortgaged Property as security for repayment of such Purchased Loan. "Assignment of Mortgage" shall mean, with respect to any Mortgage, an assignment of the mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related property is located to reflect the assignment and pledge of the Mortgage. "Bailee" shall mean Paul, Hastings, Janofsky & Walker LLP or such other third party as Buyer may approve in its sole discretion. "Bailee Agreement" shall mean the Bailee Agreement among Seller, Buyer and Bailee in the form of Exhibit VIII hereto. "Blocked Account" shall have the meaning specified in Section 5 of this Annex I. "Blocked Account Agreement" shall mean the Blocked Account Agreement, in the form attached hereto as Exhibit VI (or such other form as shall have been approved by Buyer, such approval not to be unreasonably withheld, delayed or conditioned), dated as of the date hereof and executed by Buyer, Seller and the Depository Bank (and any successor thereto or replacement thereof executed by Buyer, Seller and the Depository Bank). "Business Day" shall mean any day other than (i) a Saturday or Sunday or (ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of New York or the Custodian is authorized or obligated by law or executive order to be closed. 4 "Buyer" shall mean Goldman Sachs Mortgage Company, and any successor or assign. "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of the Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Change of Control" shall mean either of the following events have occurred: (i) a majority of the members of the board of directors of Seller changes during any twelve (12) month period after the date hereof; or (ii) a merger, consolidation or other transaction in which a Person which is not an Affiliate acquires in excess of 50% of the voting common equity of Seller; or (iii) Both of John Klopp and Steven Plavin cease to hold a senior management position with direct day-to-day responsibility for the management of Seller and a replacement for John Klopp or Steven Plavin (whichever is the last to hold a senior management position) acceptable to Buyer has not been appointed within 45 days. "Collection Period" shall mean with respect to the Remittance Date in any month, the period beginning on but excluding the Cut-off Date in the month preceding the month in which such Remittance Date occurs and continuing to and including the Cut-off Date immediately preceding such Remittance Date. "Costs" shall mean, with respect to any Purchased Loan, all out-of-pocket obligations, costs, fees, indemnities and expenses in respect of such Purchased Loan actually incurred by Buyer, that (i) arise out of Seller's conduct or (ii) (A) are required to be paid by the lender under the applicable Purchased Loan Documents and (B) do not arise out of the gross negligence or willful misconduct of the Buyer. "Custodial Agreement" shall mean, with respect to Transactions involving Purchased Loans, the Custodial Agreement, dated as of the date hereof, by and among Custodian, Seller and Buyer. "Custodial Delivery" shall mean the delivery certificate, a form of which is attached hereto as Exhibit III, executed by Seller in connection with its delivery of a Purchased Loan File to Buyer or its designee (including the Custodian) pursuant to Section 7 of this Annex I. "Custodian" shall mean Deutsche Bank Trust Company Americas or any successor Custodian appointed by Buyer. "Cut-off Date" shall mean the last Business Day of the calendar month preceding each Remittance Date. "Debt to Equity Ratio" shall mean the ratio of Total Indebtedness to Tangible Net Worth. "Default" shall mean any event which, with the giving of notice, the passage of time, or both, would constitute an Event of Default. 5 "Defaulted Loan" shall mean any Purchased Loan as to which (A) there is a breach beyond any applicable cure period of a representation, warranty or covenant by the related borrower or obligor under the applicable Purchased Loan Documents or by Seller under Exhibit V, (B) there is a default beyond any applicable cure period under the related Purchased Loan Documents in the payment when due of interest, principal or any other amounts which default continues, (C) any other "Event of Default" under the related Purchased Loan Document, (D) to the extent that the related Transaction is deemed a loan under federal, state or local law Buyer ceases to have a first priority perfected security interest or (E) the related Purchased Loan File or any portion thereof has been released from the possession of the Custodian under the Custodial Agreement to anyone other than Buyer or any Affiliate of Buyer except in accordance with the terms of the Custodial Agreement. "Depository Bank" shall mean PNC Bank, N.A. or any successor Depository Bank appointed by Seller with the prior written consent of Buyer (which consent shall not be unreasonably withheld, delayed or conditioned) which delivers a deposit account agreement in the form of the Blocked Account Agreement or another form reasonably acceptable to Buyer. "Diligence Fee" shall mean fees (not to exceed $35,000 annually) payable by Seller to Buyer in respect of Buyer's legal and other expenses incurred in connection with its review of the Diligence Materials. "Diligence Materials" shall mean the Preliminary Due Diligence Package together with the Supplemental Due Diligence List. "Disqualified Transferee" shall mean any one of the following: (a) iStar Financial and its Affiliates; (b) Anthracite Carbon Fund, together with any successor funds, to the extent such funds are in the same business as their predecessor fund and its Affiliates; (c) DB Realty Mezzanine Investment Fund I LLC and DB Realty Mezzanine Investment Fund II LLC, together with any successor funds, to the extent such funds are in the same business as their predecessor fund; (d) Brascan and its Affiliates; (e) Fortress/Draw Bridge and its Affiliates; and (f) Whitehall. "Draft Appraisal" shall mean a short form appraisal, "letter opinion of value," or any other form of draft appraisal reasonably acceptable to Buyer. "Early Repurchase Date" shall have the meaning specified in Section 3(g) of this Annex I. "Early Repurchase Deposit" shall have the meaning specified in Section 3(j) of this Annex I. 6 "Early Repurchase Deposit Application Date" shall have the meaning specified in Section 3(j) of this Annex I. "Early Repurchase Deposit Funding Date" shall have the meaning specified in Section 3(j) of this Annex I. "Eligible Loans" shall mean any of the following types of loans listed in (i) through (iv) below, (v) acceptable to Buyer in the exercise of its sole and absolute discretion, (w) secured directly or indirectly by an Eligible Property, (x) having a remaining term (after giving effect to the exercise of any extension options) not to exceed seven (7) years, (y) as to which the applicable representations and warranties set forth in Exhibit V are true and correct as of the applicable Purchase Date and (z) has a maximum LTV of 85% (or 90%, in the case of a loan secured by one or more multifamily properties): (i) performing Mezzanine Loans which are secured by pledges of the equity ownership interests in entities that directly or indirectly own Eligible Properties (referred to on Schedule 1 as the "Mezzanine Loans"). (ii) performing Mortgage Loans secured by second liens on Eligible Properties (referred to on Schedule 1 as "Second Mortgage Loans"). (iii) junior participation interests (or a junior promissory note that is, in effect, similar in nature to a junior participation interest) in performing Mortgage Loans secured by first liens on Eligible Properties that also secure a senior promissory note (or senior interest) in such loan (referred to on Schedule 1 as "First Mortgage B Notes"). (iv) any other performing loan, participation interest, preferred equity investment or other junior mezzanine or subordinate investment which does not conform to the criteria set forth in clauses (i) and (iii) above that Buyer elects in its sole discretion to purchase (referred to on Schedule 1 as "Other Mezzanine Investments"). "Eligible Property" shall mean a property that is a multifamily, retail, office, industrial, warehouse, condominium or hospitality property or such other property type acceptable to Buyer in the exercise of its good faith business judgment; provided, however, that Buyer shall determine in its sole and absolute discretion, on a case-by-case basis, whether any healthcare related property, such as assisted living, nursing homes, acute care, rehabilitation centers, diagnostic centers and psychiatric centers, qualifies as an Eligible Property. "EBITDA" shall mean, for each fiscal quarter, with respect to Seller and its consolidated Subsidiaries, an amount equal to (a) Net Income for such period (excluding the effect of any extraordinary gains or losses resulting from the sale of property or non-cash gains or losses outside the ordinary course of business) plus (b), without duplication, an amount which, in the determination of Net Income for such period, has been deducted for (i) interest expense for such period, (ii) total federal, state, foreign or other income or franchise taxes for such period, and (iii) all depreciation and amortization for such period, all as determined with respect to any consolidated subsidiary in accordance with the methodology specified in the definition of Net Income, plus (c) any nonrecurring fees and expenses incurred on or prior to the date of the execution and delivery of the Agreement, excluding (d) any non-cash reserve activity. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. Section references to ERISA are 7 to ERISA, as in effect at the date of this Annex I and, as of the relevant date, any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" means any corporation or trade or business (whether or not incorporated) that is a member of any group of organizations described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA of which Seller is a member at any relevant time. "Event of Default" shall have the meaning specified in Section 14(a) of this Annex I. "Extended Repurchase Period" means the period from the Facility Termination Date to and including the Remittance Date occurring in the ninth month following the Facility Termination Date. "Extended Repurchase Period Monthly Payment Amount" means the quotient of (i) the aggregate Repurchase Price of the Portfolio Loans as of the Facility Termination Date, divided by (ii) 9; provided, that to the extent Seller pays the aggregate Repurchase Price in an amount in excess of the Extended Repurchase Period Monthly Payment Amount in any month, Seller shall receive a credit against the next month's required payment amount (and any subsequent months' payments, if applicable) in an aggregate amount equal to such excess. "Facility Amount" shall mean $50,000,000. "Facility Termination Date" shall mean June 1, 2004 unless extended pursuant to Section 3(r) of this Annex I. "Federal Funds Rate" shall mean, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day, (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. (New York time) on such day or such transactions received by the Buyer from three Federal funds brokers of recognized standing selected by the Buyer in its sole discretion. "Fee Letter" shall mean that certain letter agreement, dated the date hereof, between Buyer and Seller, as the same may be amended, supplemented or otherwise modified from time to time. "Filings" shall have the meaning specified in Section 6(e) of this Annex I. "Financing Transaction" shall mean a repurchase transaction or a financing transaction between Buyer (or an Affiliate of Buyer) and a counterparty. "Fitch" means Fitch Inc. "Fixed Charge Ratio" shall mean, with respect to any period, the ratio of (a) EBITDA for such period to (b) the sum of (i) interest expense and (ii) preferred dividends (specifically excluding any convertible trust preferred dividends) paid by Seller during such period. "GAAP" shall mean United States generally accepted accounting principles consistently applied as in effect from time to time. 8 "Governmental Authority" shall mean any national or federal government, any state, regional, local or other political subdivision thereof with jurisdiction and any Person with jurisdiction exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hedging Transactions" shall mean, with respect to any or all of the Purchased Loans, any short sale of U.S. Treasury Securities or mortgage-related securities, futures contract (including Eurodollar futures) or options contract or any interest rate swap, cap or collar agreement or similar arrangements providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Seller or the underlying obligor with respect to any Purchased Loan and pledged to Seller as collateral for such Purchased Loan, with one or more counterparties whose unsecured debt is rated at least AA (or its equivalent) by any Rating Agency or, with respect to any Hedging Transaction pledged to Seller as additional collateral for a Purchased Loan, such other rating requirement applicable to such Hedging Transaction set forth in the related Purchased Loan Documents or which is otherwise reasonably acceptable to Buyer; provided that Seller shall not grant or permit any liens, security interests, charges, or encumbrances with respect to any such hedging arrangements for the benefit of any Person other than Buyer. "Indebtedness" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a lien on the property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements or like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; and (i) Indebtedness of general partnerships of which such Person is a general partner. "Indemnified Amounts" and "Indemnified Parties" shall have the meaning specified in Section 20 of this Annex I. "Insured Closing Letter and Escrow Instructions" shall mean a letter addressed to Seller and Buyer from the title insurance underwriter (or any agent thereof) acting as an agent for each Table Funded Purchased Loan and related escrow instructions, which letter and instructions shall be in form and substance reasonably acceptable to Buyer and Seller. "LIBO Rate" shall mean, with respect to any Pricing Rate Period pertaining to a Transaction, a rate per annum determined for such Pricing Rate Period in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): LIBOR --------------------------- 1 - Reserve Requirement 9 "LIBOR" shall mean the rate per annum calculated as set forth below: (i) On each Pricing Rate Determination Date, LIBOR for the next Pricing Rate Period will be the rate for deposits in United States dollars for a one-month period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such date; or (ii) On any Pricing Rate Determination Date on which no such rate appears on Telerate Page 3750 as described above, LIBOR for the next Pricing Rate Period will be determined on the basis of the arithmetic mean of the rates at which deposits in United States dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on such date to prime banks in the London interbank market for a one-month period. All percentages resulting from any calculations or determinations referred to in this definition will be rounded upwards, if necessary, to the nearest multiple of 1/100th of 1% and all U.S. dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent or more being rounded upwards). "LIBOR Transaction" shall mean, with respect to any Pricing Rate Period, any Transaction with respect to which the Pricing Rate for such Pricing Rate Period is determined with reference to the LIBO Rate. "Loan Type" shall mean, with respect to any Purchased Loan, each of the loan types listed in Schedule 1 attached hereto with respect to Purchased Loans. "LTV" shall mean, with respect to any Eligible Property or Properties, the ratio of the aggregate outstanding debt (which shall include the related Eligible Loan and all debt senior to or pari passu with such Eligible Loan) secured, directly or indirectly, by such Eligible Property or Properties to the aggregate value of such Eligible Property or Properties as determined by Buyer in its sole and absolute discretion. For purposes of Buyer's determination, (i) the value may be determined by reference to an Appraisal, discounted cash flow analysis or other commercially reasonable method and (ii) for the avoidance of doubt, Buyer may reduce value for any actual or potential risks (including risk of delay) posed by any liens or claims on the related Eligible Property or Properties. "Margin Excess Advance" shall have the meaning specified in Section 4(c) of this Annex I. "Material Adverse Effect" shall mean a material adverse effect on (a) the property, business, operations, financial condition or prospects of Seller, (b) the ability of Seller to perform its obligations under any of the Transaction Documents to which it is a party, (c) the validity or enforceability of any of the Transaction Documents, (d) the rights and remedies of Buyer under any of the Transaction Documents, (e) the timely payment of the Repurchase Price of or accrued Price Differential in respect of the Purchased Loans or other amounts payable in connection therewith, or (f) the aggregate value of the Purchased Loans. "Mezzanine Loan" shall mean any loan secured by a pledge of the direct or indirect equity ownership interests in a Person that owns a Mortgaged Property that also secures a Mortgage Note. 10 "Mezzanine Note" shall mean a note or other evidence of indebtedness of the owner or owners of direct or indirect equity ownership interests in an underlying real property owner secured by a pledge of such ownership interests. "Monthly Statement" shall mean, for each calendar month during which the Agreement shall be in effect, Seller's or Servicer's, as applicable reconciliation in arrears of beginning balances, interest, principal, paid-to-date and ending balances for each Purchased Loan, together with (a) an Officer's Certificate with respect to all Purchased Loans sold to Buyer as at the end of such month, (b) a written report of any developments or events that are reasonably likely to have a Material Adverse Effect, (c) a written report of any and all written modifications to any Purchased Loan Documents, (d) a written report of any delinquency and loss experience with respect to any Purchased Loan and (e) such other internally prepared reports as mutually agreed by Seller and Buyer which reconciliation, Officer's Certificate and reports shall be delivered to Buyer for each calendar month during the term of the Agreement within ten (10) days following the end of each such calendar month. "Moody's" shall mean Moody's Investor Service, Inc. "Mortgage" shall mean the mortgage, deed of trust, deed to secure debt or other instruments, creating a valid and enforceable first or second lien, as applicable, on or a first or second priority ownership interest in a Mortgaged Property. "Mortgage Loan" shall mean a commercial mortgage loan secured by a lien on real property. "Mortgage Note" shall mean a note or other evidence of indebtedness of a Mortgagor secured by a Mortgage. "Mortgaged Property" shall mean the real property or properties securing repayment of the debt evidenced by a Mortgage Note, or, in the case of any Mezzanine Loan or Other Mezzanine Investment, owned indirectly by the related obligor. "Mortgagor" shall mean the obligor on a Mortgage Note, the grantor of the related Mortgage and the owner of the related Mortgaged Property. "Net Income" shall mean, for any period, the consolidated net income for such period of Seller as reported in Seller's public financial statements prepared in accordance with GAAP. "New Loan" shall mean an Eligible Loan that Seller proposes to be included as a Purchased Loan. "Officer's Certificate" shall mean, as to any Person, a certificate of the chief executive officer, any vice chairman and the chief financial officer of such Person or, for the purpose of executing certificates, the president, the vice president and counsel responsible therefor. "Originated Loan" shall mean any loan that is an Eligible Loan and whose related loan documents were prepared by Seller or an Affiliate controlled by Seller. 11 "Permitted Transferee" shall mean any of the following which is not a Disqualified Transferee: (x) any Affiliate of Buyer; or (y) any Person that is an insurance company, bank, savings and loan association, trust company, commercial credit corporation, pension plan, pension fund or pension fund advisory firm, mutual fund or other investment company, governmental entity or plan, or a financial institution substantially similar to any of the foregoing and being experienced in making commercial loans and which holds at least $600,000,000 of real estate or other assets (including, without limitation, loans secured directly or indirectly by real estate assets) located in the United States (or any entity wholly-owned by any one or more institutions meeting the foregoing criteria). "Person" shall mean an individual, corporation, limited liability company, business trust, partnership, joint tenant or tenant-in-common, trust, unincorporated organization, or other entity, or a federal, state or local government or any agency or political subdivision thereof. "Plan" shall mean an employee benefit or other plan established or maintained during the five year period ended prior to the date of the Agreement or to which Seller or any ERISA Affiliate makes, is obligated to make or has, within the five year period ended prior to the date of the Agreement, been required to make contributions and that is covered by Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code. "Plan Assets" shall mean assets of any (i) employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title I of ERISA, (ii) plan (as defined in Section 4975(e)(l) of the Code) subject to Section 4975 of the Code, or (iii) governmental plan (as defined in Section 3(32) of ERISA) subject to any other federal, state or local laws, rules or regulations substantially similar to Title I of ERISA or Section 4975 of the Code. "Portfolio Loans" shall mean all of the Purchased Loans. As of the date of the Agreement, the Eligible Loans identified on Schedule 2 hereto have been approved by Buyer as suitable for inclusion as Portfolio Loans, subject to completion of the deliveries and actions described in Section 7. "Pre-Existing Loans" shall mean any loan that is an Eligible Loan and is not an Originated Loan. "Preliminary Due Diligence Package" shall mean with respect to any New Loan, the following due diligence information relating to such New Loan to be provided by Seller to Buyer pursuant to this Annex I: (i) a summary memorandum outlining the proposed transaction, including potential transaction benefits and all material underwriting risks, all Underwriting Issues and all other characteristics of the proposed transaction that a prudent buyer would consider material; (ii) current rent roll, if applicable; (iii) cash flow pro-forma, plus historical information, if available; (iv) indicative debt service coverage ratios; 12 (v) indicative loan-to-value ratio; (vi) Seller's or any Affiliate's relationship with its potential underlying borrower or any affiliate; (vii) if applicable, Phase I environmental report (including asbestos and lead paint report); (viii) if applicable, engineering and structural reports; (ix) third party reports, to the extent available and applicable, including: (a) current Appraisal; (b) Phase II or other follow-up environmental report if recommended in Phase I; (c) seismic reports; and (d) operations and maintenance plan with respect to asbestos containing materials; (xi) analyses and reports with respect to such other matters concerning the New Loan as Buyer may in its sole discretion require; (xii) documents evidencing such New Loan, or current drafts thereof, including, without limitation, underlying debt and security documents, guaranties, underlying borrower's organizational documents, warrant agreements, loan and collateral pledge agreements, and intercreditor agreements, as applicable; (xiii) a list that specifically and expressly identifies any Purchased Loan Documents that relate to such Purchased Loan but are not in Seller's possession; (xiv) in the case of a participation interest, all information described in this definition which would otherwise be provided for the underlying Mortgage Loan if it constituted an Eligible Loan except that, as to items set forth in subparagraphs (ix) and (x), to the extent Seller possesses such information or has access to such information because it was provided to the related lead lender and made available to Seller, and in addition, all documentation evidencing the participation interest; and (xv) insurance documentation as shall be satisfactory to Buyer in its sole discretion. "Pricing Rate Determination Date" shall mean with respect to any Pricing Rate Period, the second (2nd) Business Day preceding the first day of the Pricing Rate Period. "Pricing Rate Period" shall mean (a) in the case of the first Pricing Rate Period with respect to any Transaction, the period commencing on and including the Purchase Date for such Transaction and ending on and including the last day of the calendar month in which the Purchase Date occurs, and (b) in the case of any subsequent Pricing Rate Period, the period commencing on and including the first day of a calendar month and ending on and including the last day of such calendar month; provided, however, that in no event shall any Pricing Rate Period end subsequent to the Repurchase Date. 13 "Principal Payment" shall mean, with respect to any Purchased Loans, any payment or prepayment of principal received in respect thereof (including casualty or condemnation proceeds to the extent such proceeds are not required under the underlying loan documents to be reserved, escrowed, readvanced or applied for the benefit of the obligor or the underlying real property). For purposes of clarification, prepayment premiums or penalties shall not be deemed principal. "Purchase Percentage" shall mean, with respect to any Purchased Loan, the "Purchase Percentage" specified in Schedule 1 for the related Loan Type (or as otherwise specified in the applicable Confirmation). "Purchased Loan Documents" shall mean, with respect to a Purchased Loan, the documents comprising the Purchased Loan File for such Purchased Loan. "Purchased Loan File" shall mean the documents specified as the "Purchased Loan File" in Section 7(b) of this Annex I, together with any additional documents and information required to be delivered to Buyer or its designee (including the Custodian) pursuant to this Annex I. "Purchased Loan Information" shall mean, with respect to each Purchased Loan, the information set forth in Schedule 3 attached hereto. "Purchased Loan Schedule" shall mean a schedule of Purchased Loans attached to each Trust Receipt and Custodial Delivery Certificate containing information substantially similar to the Purchased Loan Information. "Purchased Loans" shall mean (i) with respect to any Transaction, the Eligible Loans sold by Seller to Buyer in such Transaction and (ii) with respect to the Transactions in general, all Eligible Loans sold by Seller to Buyer and any additional cash and/or other assets delivered by Seller to Buyer pursuant to Section 4(a) of this Annex I. "Rating Agency" shall mean any of Fitch, Moody's and Standard & Poor's. "Reference Banks" shall mean banks each of which shall (i) be a leading bank engaged in transactions in Eurodollar deposits in the international Eurocurrency market and (ii) have an established place of business in London. Initially, the Reference Bank shall be JPMorgan Chase Bank. If any such Reference Bank should be unwilling or unable to act as such or if Buyer shall terminate the appointment of any such Reference Bank or if any of the Reference Banks should be removed from the Reuters Monitor Money Rates Service or in any other way fail to meet the qualifications of a Reference Bank, Buyer in the exercise of its good faith business judgment may designate alternative banks meeting the criteria specified in clauses (i) and (ii) above. "Regulations T, U and X" shall mean Regulations T, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "Remittance Date" shall mean the first (1st) calendar day of each month, or the next succeeding Business Day, if such calendar day shall not be a Business Day. "Requirement of Law" shall mean any law, treaty, rule, regulation, code, directive, policy, order or requirement or determination of an arbitrator or a court or other governmental authority whether now or hereafter enacted or in effect. 14 "Reserve Requirement" shall mean, with respect to any Pricing Rate Period, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect during such Pricing Rate Period (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other governmental authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board of Governors) maintained by Buyer. "Reset Date" shall mean, with respect to any Pricing Rate Period, the second Business Day preceding the first day of such Pricing Rate Period with respect to any Transaction. "Scheduled Purchase Date" shall mean the date agreed between the parties or specified in the applicable Confirmation as the "Purchase Date" or the "Scheduled Purchase Date". "Seller" shall mean Capital Trust, Inc., a Maryland corporation and its permitted successors and assigns. "Servicing Agreement" has the meaning specified in Section 22(b) of this Annex I. "Servicing Fee" shall mean the "Servicing Fees" as defined in the Servicing Agreement payable to the Servicer thereunder. "Servicing Records" has the meaning specified in Section 22(b) of this Annex I. "Significant Modification" shall mean (a) any modification or amendment of a Purchased Loan which: (i) reduces the principal amount of the Purchased Loan in question other than (1) with respect to a dollar-for-dollar principal payment or (2) reductions of principal to the extent of deferred, accrued or capitalized interest added to principal which additional amount was not taken into account by Buyer in determining the related Purchase Price; (ii) increases the principal amount of a Purchased Loan other than increases which are derived from accrual or capitalization of deferred interest which is added to principal or protective advances; (iii) modifies the payments of principal and interest when due of the Purchased Loan in question; (iv) changes the frequency of scheduled payments of principal and interest in respect of a Purchased Loan; (v) subordinates the lien priority of the Purchased Loan or the payment priority of the Purchased Loan other than subordinations expressly required under the then existing terms and conditions of the Purchased Loan (provided, however, the foregoing shall not preclude the execution and delivery of subordination, nondisturbance and attornment agreements with tenants, subordination to tenant leases, easements, plats of subdivision and condominium declarations and similar instruments which in the commercially reasonable judgment of Seller do not materially adversely affect the rights and interest of the holder of the Purchased Loan in question); 15 (vi) releases any collateral for the Purchased Loan other than releases required under the then existing Purchased Loan documents or releases in connection with eminent domain or under threat of eminent domain; (vii) waives, amends or modifies any cash management or reserve account requirements of the Purchased Loan other than changes required under the then existing Purchased Loan documentation; (viii) waives any due-on-sale or due-on-encumbrance provisions of the Purchased Loan other than waivers required to be given under the then existing Purchased Loan documents; and (b) any modification, amendment or other material action with respect to a Purchased Loan (or the related mortgage loan, if such Purchased Loan is Mezzanine Loan or Other Mezzanine Investment) which under the terms of the related intercreditor agreement or participation agreement, as the case may be, requires the consent of Seller or its "operating advisor" or the agent (as distinct from consultation rights). "Standard & Poor's" shall mean Standard & Poor's Ratings Services, Inc., a division of the McGraw Hill Companies Inc. "Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Supplemental Due Diligence List" shall mean, with respect to any New Loan, information or deliveries concerning such New Loan that Buyer shall request in addition to the Preliminary Due Diligence Package, including, without limitation, a credit approval memorandum representing the final terms of the underlying transaction, a loan-to-value ratio computation and a final debt service coverage ratio computation for such proposed New Loan. "Survey" shall mean a certified ALTA/ACSM (or applicable state standards for the state in which a Mortgaged Property is located) survey of a Mortgaged Property prepared by a registered independent surveyor and in form and content reasonably satisfactory to Buyer and the company issuing the Title Policy for such Mortgaged Property. "Table Funded Purchased Loan" shall mean a Purchased Loan which is sold to Buyer simultaneously with the origination or acquisition thereof, which origination or acquisition is financed with the Purchase Price, pursuant to Seller's request, paid directly to a title company or other settlement agent, in each case, approved by Buyer, for disbursement in connection with such origination or acquisition. A Purchased Loan shall cease to be a Table Funded Purchased Loan after the Custodian has delivered a Trust Receipt to Buyer certifying its receipt of the Purchased Loan File therefor. 16 "Tangible Net Worth" shall mean, as of any date of determination, (a) all amounts which would be included under capital (it being agreed that any convertible trust preferred securities and any unfunded commitments or capital which can be drawn will be included as capital) on the balance sheet of Seller at such date, determined in accordance with GAAP as of such date, less (b)(i) amounts owing to Seller from Affiliates and (ii) intangible assets of the Seller as of such date. "Table Funded Trust Receipt" shall have the meaning given to such term in the Custodial Agreement. "Telerate Page 3750" shall mean the display page currently so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying comparable rates or prices). "Title Policy" shall have the meaning specified in paragraph 2(d) of Exhibit V. "Total Indebtedness" shall mean, as of any date of determination, the aggregate Indebtedness of Seller as of such date less the amount of any nonspecific balance sheet reserves maintained in accordance with GAAP as of such date. "Transaction" shall have the meaning specified in Section 1(a) of this Annex I. "Transaction Conditions Precedent" shall have the meaning specified in Section 3(e) of this Annex I. "Transaction Costs" shall mean, with respect to any Purchased Loan, all actual out-of-pocket reasonable costs and expenses paid or incurred by Buyer and payable by Seller relating to the purchase of such Purchased Loan (including legal fees and other fees described in Section 20(b) of this Annex I). Transaction Costs shall not include costs incurred by Buyer for overhead and general administrative expenses. "Transaction Documents" shall mean, collectively, the Agreement (including this Annex I and any other annexes and schedules attached to the Agreement), the Fee Letter, the Blocked Account Agreement, the Custodial Agreement, the Servicing Agreement, the Transfer Documents, all Confirmations executed pursuant to this Annex I in connection with specific Transactions and all other documents executed in connection herewith and therewith. "Transfer Documents" shall mean, with respect to any Purchased Loan, all applicable documents described in Section 7(b) of this Annex I necessary to transfer all of Seller's right, title and interest in such Purchased Loan to Buyer in accordance with the terms of this Annex I. "Trust Receipt" shall mean a trust receipt issued by the Custodian, or the Bailee, as applicable, to Buyer confirming the Bailee's or the Custodian's, as applicable, possession of certain Purchased Loan Files which are the property of and held by the Bailee or the Custodian, as applicable, on behalf of Buyer (or any other holder of such trust receipt) in the form required under the Custodial Agreement or the Bailee Agreement. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of any security interest is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform Commercial 17 Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Annex I relating to such perfection or effect of perfection or non-perfection. "Underwriting Issues" shall mean, with respect to any Eligible Loan as to which Seller intends to request a Transaction, all material information that has come to Seller's attention that, based on the making of reasonable inquiries and the exercise of reasonable care and diligence under the circumstances, would, in the context of the totality of the Transaction in question, be considered a materially "negative" factor (either separately or in the aggregate with other information), (including, but not limited to, whether any of the Eligible Loans were repurchased from any warehouse loan facility or a repurchase transaction due to the breach of a representation and warranty or a material defect in loan documentation or closing deliveries (such as any absence of any material Purchased Loan Document(s)), to a reasonable institutional mortgage or mezzanine loan buyer in determining whether to originate or acquire the Eligible Loan in question. 3. INITIATION; CONFIRMATION; TERMINATION; FEES The provisions of Paragraph 3 of the Agreement ("Initiation; Confirmation; Termination") are hereby deleted and replaced in their respective entireties by the following provisions of this Section 3: (a) Seller may, from time to time, prior to the Facility Termination Date, request that Buyer enter into a Transaction with respect to one or more New Loans. Seller shall initiate each request by submitting a Preliminary Due Diligence Package for Buyer's review and approval. Notwithstanding anything to the contrary herein, Buyer shall have no obligation to consider for purchase any proposed Transaction which has an aggregate Repurchase Price (excluding the Price Differential with respect to the Purchased Loans as of the date of determination) that when combined with all Purchased Loans which have not been repurchased by Seller exceeds the Facility Amount. Buyer shall determine, in its sole and absolute discretion, whether a New Loan qualifies as an Eligible Loan. Buyer shall have the right to review all New Loans proposed to be sold to Buyer in any Transaction and to conduct its own due diligence investigation of such New Loans as Buyer determines is reasonably necessary. Seller agrees to promptly reimburse Buyer for its Diligence Fees (subject to a cap of $35,000 per annum) upon request for payment or reimbursement thereof. Notwithstanding any provision to the contrary herein or any other Transaction Document, Buyer shall be entitled to make a determination, in its sole and absolute discretion, that it shall not purchase any or all of the New Loans proposed to be sold to Buyer by Seller. (b) Upon Buyer's receipt of a complete Preliminary Due Diligence Package with respect to a proposed Transaction, Buyer shall have the right within two (2) Business Days, to request in a Supplemental Due Diligence List such additional Diligence Materials and deliveries that Buyer deems necessary to properly evaluate the New Loans. Upon Buyer's receipt of such Diligence Materials or Buyer's waiver thereof, Buyer shall within five (5) Business Days either (i) notify Seller of Buyer's intent to proceed with the Transaction and of its determination with respect to the Purchase Price and the Market Value for the related New Loans (such notice, a "Preliminary Approval") or (ii) deny, in Buyer's sole and absolute discretion, Seller's request for a Transaction. Buyer's failure to respond to Seller within five (5) Business Days, as applicable, shall be deemed to be a denial of Seller's request to enter into the proposed Transaction, unless Buyer and Seller have agreed otherwise in writing. (c) Upon Seller's receipt of Buyer's Preliminary Approval with respect to a Transaction, Seller shall, if Seller desires to enter into such Transaction with respect to the related New Loans upon the terms set forth by Buyer in its preliminary Approval, satisfy the conditions set forth below with respect to 18 each New Loan as a condition precedent to Buyer's Final Approval (as defined below), all in a manner reasonably satisfactory to Buyer and pursuant to documentation reasonably satisfactory to Buyer: (i) Delivery of Purchased Loan Documents. Seller shall deliver to Buyer: (x) with respect to any New Loan that is a Pre-Existing Loan, copies of the Purchased Loan Documents, except for such Purchased Loan Documents that Seller expressly and specifically disclosed in Seller's Preliminary Due Diligence Package were not in Seller's possession; and (y) with respect to any New Loan that is an Originated Loan, drafts of the Purchased Loan Documents. (ii) Environmental and Engineering. Buyer shall have received a "Phase 1" (and, if necessary, "Phase 2") environmental report, an asbestos survey, if applicable, and an engineering report, each in form reasonably satisfactory to Buyer, by an engineer and an environmental consultant, each as listed on Schedules 5 and 6, respectively, as such schedules may be amended from time to time by Seller or Buyer upon approval by Buyer in its reasonable discretion. (iii) Appraisal. If obtained by Seller, Buyer shall have received either an Appraisal or a Draft Appraisal of the related Eligible Property or Properties. If Buyer receives only a Draft Appraisal prior to entering into a Transaction, Seller shall deliver an Appraisal on or before thirty (30) days after the Purchase Date. (iv) Insurance. Buyer shall have received certificates or other evidence of insurance detailing insurance coverage in respect of the related Eligible Property or Properties of types (including but not limited to casualty, general liability and terrorism insurance coverage), in amounts, with insurers and otherwise in compliance with the terms, provisions and conditions set forth in the Purchased Loan Documents and otherwise reasonably satisfactory to Buyer. Such certificates or other evidence shall indicate that Seller (or as to a New Loan that is a participation interest, the lead lender on the related whole loan in which Seller is a participant) will be named as an additional insured as its interest may appear and shall contain a loss payee endorsement in favor of such additional insured with respect to the policies required to be maintained under the Purchased Loan Documents. (v) Survey. Buyer shall have received all surveys of the related Eligible Property or Properties that are in Seller's possession. (vi) Lien Search Reports. Buyer or Buyer's counsel shall have received, as reasonably requested by Buyer, satisfactory reports of UCC, tax lien, judgment and litigation searches and any existing Title Policies relating to the New Loan, Eligible Property or Properties, Seller and related underlying obligor, such searches to be conducted in each location Buyer shall reasonably designate. (vii) Opinions of Counsel. Buyer shall have received copies of all legal opinions with respect to the New Loan which shall be in form and substance reasonably satisfactory to Buyer. (viii) Title Policy. (a) With respect to any New Loan that is a Mortgage Loan, Seller shall have delivered to Buyer (1) an unconditional commitment to issue a Title 19 Policy or Policies in favor of Seller and Seller's successors and/or assigns with respect to Seller's interest in the related real property with an amount of insurance that shall be not less than the related Repurchase Price or such other amount as Buyer shall require in its reasonable discretion or (2) an endorsement or confirmatory letter from the existing title company to an existing Title Policy (in an amount not less than the related Repurchase Price or such other amount as Buyer shall require in its reasonable discretion) in favor of Seller and Seller's successors and/or assigns that adds such parties as an additional insured. (b) With respect to any New Loan that is a First Mortgage B-Note, Seller shall have delivered to Buyer a copy of an unconditional commitment to issue a Title Policy or endorse an existing Title Policy in favor of the lead lender to whom the related obligor issued the related Mortgage Note, in an amount not less than the amount of such Mortgage Note and, if the First Mortgage B-Note is evidenced by a separate promissory note rather than a participation certificate, in an amount not less than the amount of all Mortgage Notes secured by the Mortgage that secures the related promissory notes. (c) With respect to a Mezzanine Loan or Other Mezzanine Investment, (i) Seller shall have delivered to Buyer such evidence as Buyer on a case-by-case basis, in its sole discretion, shall require of the ownership of the real property underlying New Loan including, without limitation, (i) a copy of a Title Policy, issued by a title insurer and with such endorsements (including, without limitation, a "Mezzanine Lender's Endorsement", if obtained by Seller), in each case acceptable to Buyer in its sole discretion, showing that title is vested in the related obligor or in an entity in whom such obligor holds an equity interest and (ii) if obtained by Seller, Seller shall have delivered to Buyer an Eagle 9 UCC Title Policy which policy shall (x) provide an amount of insurance that shall be not less than the related Repurchase Price or such other amount as Buyer shall require in its sole discretion, (y) shall insure Seller's security interest in the equity interests pledged and (z) be assignable by its terms with a transfer of the Mezzanine Loan or Other Mezzanine Investment, as applicable. (ix) Additional Real Estate Matters. To the extent obtained by Seller, Seller shall have delivered to Buyer such other real estate related certificates and documentation as may have been requested by Buyer, such as: (y) certificates of occupancy issued by the appropriate Governmental Authority and either letters certifying that the related Eligible Property or Properties is in compliance with all applicable zoning laws issued by the appropriate Governmental Authority or evidence that the related Title Policy includes a zoning endorsement and (z) abstracts of all leases in effect at the Mortgaged Property delivered in connection with the New Loan. (x) First Mortgage B-Notes. In the case of a First Mortgage B-Note, in addition to the delivery of the items in clauses (vi), (vii) and (viii), Buyer shall have received all documentation specified in clauses (i) through (v) and (ix) as if the underlying Mortgage Loan were the direct collateral to the extent Seller possesses such documentation or has access to such documentation because it was provided to the related lead lender and made available to Seller and, to the extent applicable, all documents evidencing a participation interest, including, but not limited to, an original participation certificate, if applicable, and the related participation agreement and/or the related intercreditor agreement. 20 (xi) Other Documents. Buyer shall have received such other documents as Buyer or its counsel shall reasonably deem necessary. Within five (5) Business Days of Seller's satisfaction of all of the conditions enumerated in clauses (i) through (xi) above, Buyer shall either (A) if the Purchased Loan Documents with respect to the New Loan are not reasonably satisfactory in form and substance to Buyer, notify Seller that Buyer has not approved the New Loan or (B) notify Seller that Buyer agrees to purchase the New Loan, subject to satisfaction (or waiver by Buyer) of the Transaction Conditions Precedent (such notice, a "Final Approval"). Buyer's failure to respond to Seller within five (5) Business Days shall be deemed to be a denial of Seller's request that Buyer purchase the New Loan, unless Buyer and Seller have agreed otherwise in writing. (d) Upon issuing a Final Approval with respect to a proposed Transaction, Buyer shall promptly deliver to Seller a written confirmation in the form of Exhibit I attached hereto of each proposed Transaction (a "Confirmation"); provided, that unless otherwise agreed by Seller, Buyer shall deliver a separate Confirmation with respect to each New Loan (and, in this connection, shall set forth (a) the name of the borrower with respect to the New Loan, (b) the loan agreement (including the date) or other document or instrument pursuant to which the related New Loan is made or governed, and (c) the initial or then outstanding principal amount of the related New Loan), shall identify Buyer and Seller, and shall set forth (i) the Purchase Date, (ii) the Purchase Price for such New Loan (which based on Buyer's diligence may be different than the Purchase Price set forth in the Preliminary Approval delivered to Seller), (iii) the Repurchase Date, (iv) the Pricing Rate applicable to such New Loan (including the Applicable Spread) and (v) any additional terms or conditions not inconsistent with the Agreement reasonably and in good faith requested by Buyer which do not have the effect of materially changing the terms and conditions of the Agreement. Each Confirmation shall be deemed incorporated herein by reference with the same effect as if set forth herein at length. With respect to any Transaction, the Pricing Rate shall be determined initially on the Pricing Rate Determination Date applicable to the first Pricing Rate Period for such Transaction, and shall be reset on each Reset Date for the next succeeding Pricing Rate Period for such Transaction. Buyer or its agent shall determine in accordance with the terms of the Agreement the Pricing Rate on each Pricing Rate Determination Date for the related Pricing Rate Period and notify Seller of such rate for such period on the Reset Date. (e) Provided each of the Transaction Conditions Precedent set forth in this Section 3(e) shall have been satisfied (or waived by Buyer), and subject to Seller's rights under Section 3(f), Buyer shall transfer the Purchase Price to Seller with respect to each New Loan for which it has issued a Confirmation on the Purchase Date specified in such Confirmation (provided Seller has not objected to such Confirmation within the time frame permitted under Section 3(f)), which shall be not more than three (3) Business Days following the issuance of such Confirmation of a Transaction by Buyer in accordance with this Section 3, and the related Purchased Loan shall be concurrently transferred by Seller to Buyer or its nominee. For purposes of this Section 3(e), the "Transaction Conditions Precedent" shall be satisfied with respect to any proposed Transaction if: (1) No (x) monetary or material non-monetary Default or (y) Event of Default under the Agreement shall have occurred and be continuing as of the Purchase Date for such proposed Transaction; (2) Seller shall have a Fixed Charge Ratio of less than 1:2 and a Debt to Equity Ratio greater than 5:1 for the fiscal quarter most recently ended; (3) The Seller shall have delivered to the Buyer an Officer's Certificate of the Seller certifying that (A) the representations and warranties made by Seller in any of the 21 Transaction Documents are true and correct in all material respects as of the Purchase Date for such Transaction and unless waived by Buyer (except (i) such representations which by their terms speak as of a specified date and (ii) to the extent such representations and warranties have been previously qualified and such qualifications have been accepted by Buyer), (B) Seller is in compliance with all governmental licenses and authorizations, (C) Seller is qualified to do business, validly existing and, to the extent determinable, in good standing, in all required jurisdictions, (D) the facts set forth in the Diligence Materials related to the collateral for the Purchased Loan are, to the best knowledge of Seller after diligent inquiry, true and correct (or shall fully explain all adverse changes from the information previously supplied to Buyer), (E) there has been no change in the organizational and authority documents provided to Buyer pursuant to Section 7(d)(ii) of this Annex I since the date of the most recent certification thereof to Buyer, and (F) there has been no Material Adverse Effect since the last Purchase Date. If requested by Buyer, Seller shall also receive an Officer's Certificate covering such matters as Buyer may request; (4) Buyer shall have (A) determined, in accordance with the applicable provisions of Section 3(a) of this Annex I that the New Loan proposed to be sold to Buyer by Seller in such Transaction is an Eligible Loan and (B) obtained internal credit approval for the inclusion of such New Loan as a Purchased Loan in a Transaction; (5) The applicable Purchased Loan File described in Section 7(b) shall have been delivered to Custodian or Bailee and Buyer shall have received a Trust Receipt from Custodian or Bailee with respect to such Purchased Loan File; (6) Seller shall have delivered to each Mortgagor or obligor under any Purchased Loan a direction letter in accordance with Section 5(a) of this Annex I unless such Mortgagor or obligor or related servicer or senior lender is already remitting payments to the Servicer whereupon Seller shall direct the Servicer to remit all such amounts into the Blocked Account in accordance with Section 5(a) and to service such payments in accordance with the Servicing Agreement and the provisions of this Annex I; (7) Seller shall have paid to Buyer any unpaid Diligence Fees in respect of such Purchased Loan; (8) Buyer shall have determined that after giving effect to the proposed Transaction, (i) the Repurchase Price (exclusive of accrued and unpaid Pricing Differential) of no single Purchased Loan exceeds 40% of the Facility Amount and (ii) the aggregate Repurchase Price (exclusive of accrued and unpaid Pricing Differential) of Purchased Loans secured directly or indirectly by Eligible Properties which are hospitality assets does not exceed 30% of the Facility Amount; (9) No Purchased Loan shall be a Defaulted Loan; (10) Buyer shall have received an opinion of counsel of Seller, in form and substance reasonably satisfactory to Buyer, covering the enforceability, authority, execution, delivery and perfection of the assignment of the Purchased Loan and all Transfer Documents, and such other matters as Buyer may reasonably require; (11) No event shall have occurred or circumstance shall exist which has a Material Adverse Effect; 22 (12) There shall not have occurred (i) a material change in financial markets, an outbreak or escalation of hostilities or a material change in national or international political, financial or economic conditions, (ii) a general suspension of trading on major stock exchanges or suspension of trading in Seller's stock and (iii) a disruption in or moratorium on commercial banking activities or securities settlement services. (f) Each Confirmation, together with the Agreement, shall be conclusive evidence of the terms of the Transaction covered thereby unless objected to in writing by Seller no more than two (2) Business Days after the date such Confirmation is received by Seller. An objection sent by Seller with respect to any Confirmation must state specifically that the writing is an objection, must specify the provision(s) of such Confirmation being objected to by Seller, must set forth such provision(s) in the manner that Seller believes such provisions should be stated, and must be received by Buyer no more than two (2) Business Days after such Confirmation is received by Seller. Buyer, in its sole discretion, may issue another Confirmation addressing Seller's objections or may elect not to proceed with the proposed Transaction. (g) Seller shall be entitled to terminate a Transaction on demand, and repurchase the related Purchased Loan on any Business Day prior to the Repurchase Date (an "Early Repurchase Date"); provided, however, that: (i) No Event of Default shall be continuing or would occur or result from such early repurchase, (ii) Seller notifies Buyer in writing of its intent to terminate such Transaction and repurchase the related Purchased Loan no later than five (5) Business Days prior to the Early Repurchase Date, and (iii) Other than as set forth below in subsection (iv) below, on the Early Repurchase Date, Seller shall pay to Buyer an amount equal to the sum of the Repurchase Price for such Transaction, all Costs and any other amounts payable by Seller and outstanding under the Agreement (including, without limitation, Section 3(n) of this Annex I) with respect to such Transaction against transfer to Seller or its agent of the related Purchased Loan. (h) On the Repurchase Date (or the Early Repurchase Date, as applicable), termination of the applicable Transactions will be effected by transfer to Seller or, if requested by Seller, its designee of the related Purchased Loans, and any Income in respect thereof received by Buyer (and not previously credited or transferred to, or applied to the obligations of, Seller pursuant to Section 4(a) or Section 5) against the simultaneous transfer of the Repurchase Price, all Costs and any other amounts payable and outstanding under the Agreement (including without limitation, Sections 3(l) and 3(n) of this Annex I, if any) to an account of Buyer. (i) So long as no Default or Event of Default has occurred and is then continuing, the Repurchase Price with respect to one or more Purchased Loans may be paid in part at any time upon two (2) Business Days prior written notice; provided, however, that any such payment shall be accompanied by an amount representing accrued Price Differential with respect to such Purchased Loan(s) on the amount of such payment and all other amounts then due under the Transaction Documents. Each partial payment of the Repurchase Price that is voluntary (as opposed to mandatory under the terms of the Agreement) shall be in an amount of not less than One Hundred Thousand Dollars ($100,000). (j) In lieu of repaying the Repurchase Price, in whole or in part, with respect to the Transactions when and as otherwise required or permitted by the Agreement, Seller may elect to deposit 23 any such amount (the "Early Repurchase Deposit") with Buyer (the date of such deposit, the "Early Repurchase Deposit Funding Date") until such date as the application of the Early Repurchase Deposit towards the Repurchase Price would not cause Buyer to incur such costs (the "Early Repurchase Deposit Application Date"). The Early Repurchase Deposit shall be held in an interest-bearing account controlled by Buyer and, at Buyer's option, shall be accompanied by a payment (as estimated by Buyer) equal to the difference between the interest earned on the Early Repurchase Deposit and the Price Differential that will accrue on a portion of the relevant Transaction equal to the Early Repurchase Deposit during the period from the Early Repurchase Deposit Funding Date to the Early Repurchase Deposit Application Date. (k) Concurrently with its execution and delivery of the Agreement and on such other dates specified in the Fee Letter, Seller shall pay Buyer the amounts specified in the Fee Letter. (l) If prior to the first day of any Pricing Rate Period with respect to any Transaction, (i) Buyer shall have reasonably determined (which determination shall be conclusive and binding upon Seller absent manifest error) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Pricing Rate Period, or (ii) the LIBO Rate determined or to be determined for such Pricing Rate Period will not adequately and fairly reflect the cost to Buyer (as reasonably determined and certified to Seller by Buyer) of making or maintaining Transactions during such Pricing Rate Period, Buyer shall give telecopy or telephonic notice thereof to Seller as soon as practicable thereafter. If such notice is given, the Pricing Rate with respect to such Transaction for such Pricing Rate Period, and for any subsequent Pricing Rate Periods until such notice has been withdrawn by Buyer, shall be a per annum rate equal to the sum of (i) the Federal Funds Rate, (ii) 0.25% and (iii) the Applicable Spread (the "Alternative Rate"). (m) Notwithstanding any other provision herein, if after the date of the Agreement, the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for Buyer to effect LIBOR Transactions as contemplated by the Transaction Documents, (a) the commitment of Buyer hereunder to enter into new LIBOR Transactions and to continue LIBOR Transactions as such shall forthwith be canceled, and (b) the LIBOR Transactions then outstanding shall be converted automatically to Alternative Rate Transactions on the last day of the then current Pricing Rate Period or within such earlier period as may be required by law. If any such conversion of a LIBOR Transaction occurs on a day which is not the last day of the then current Pricing Rate Period with respect to such LIBOR Transaction, Seller shall pay to Buyer such amounts, if any, as may be required pursuant to Section 3(n). (n) Upon demand by Buyer, Seller shall indemnify Buyer and hold Buyer harmless from any net loss or expense (not to include any lost profit or opportunity) (including, without limitation, reasonable attorneys' fees and disbursements) which Buyer actually sustains or incurs as a consequence of (i) default by Seller in terminating any Transaction after Seller has given a notice in accordance with Section 3(g) of a termination of a Transaction, (ii) any payment of all or any portion of the Repurchase Price, as the case may be, on any day other than a Remittance Date (including, without limitation, any such loss or expense arising from the reemployment of funds obtained by Buyer to maintain Transactions hereunder or from fees payable to terminate the deposits from which such funds were obtained, provided Seller shall not be obligated to reimburse Buyer for the incremental cost of reemploying funds or terminating deposits which arise solely as a result of Buyer depositing funds or employing funds at a rate calculated other than by reference to LIBOR (as defined herein)) or (iii) default by Seller in selling Eligible Loans after Seller has notified Buyer of a proposed Transaction and Buyer has agreed to purchase such Eligible Loans in accordance with the provisions of the Agreement. A certificate as to such costs, losses, damages and expenses, setting forth the calculations therefor shall be submitted promptly by Buyer to Seller and shall be conclusive and binding on Seller in the absence of manifest error. 24 (o) If (A) the Transactions are characterized by a U.S. Federal, state or local taxing authority in a manner other than as described in Section 23 of this Annex I, or (B) after the date of the Agreement, the adoption of or any change in any Requirement of Law or in the interpretation or application thereof by any Governmental Authority or compliance by Buyer with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority having jurisdiction over Buyer made subsequent to the date hereof: (i) shall subject Buyer to any tax of any kind whatsoever with respect to the Transaction Documents, any Purchased Loan or any Transaction, or change the basis of taxation of payments to Buyer in respect thereof (except for changes in the rate of tax on Buyer's overall net income); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of Buyer which is not otherwise included in the determination of the LIBO Rate hereunder; or (iii) shall impose on Buyer any other condition due to the Agreement or the Transactions; and the result of any of the foregoing is to increase the cost to Buyer of entering into, continuing or maintaining Transactions or to reduce any amount receivable under the Transaction Documents in respect thereof; then, in any such case, Seller shall pay Buyer, within ten (10) Business Days after written demand therefor is received by Seller, any additional amounts necessary to compensate Buyer for such increased cost payable or reduced amount receivable. If Buyer becomes aware that it is entitled to claim any additional amounts pursuant to this Section 3(o), it shall notify Seller in writing of the event by reason of which it has become so entitled. A certificate as to the calculation of any additional amounts payable pursuant to this subsection shall be submitted by Buyer to Seller and shall be conclusive and binding upon Seller in the absence of manifest error. This covenant shall survive the termination of the Agreement and the repurchase by Seller of any or all of the Purchased Loans. (p) If Buyer shall have reasonably determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by Buyer or any corporation controlling Buyer with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does have the effect of reducing the rate of return on Buyer's or such corporation's capital as a consequence of its obligations hereunder to a level below that which Buyer or such corporation could have achieved but for such adoption, change or compliance (taking into consideration Buyer's or such corporation's policies with respect to capital adequacy) by an amount deemed by Buyer to be material, then from time to time, after submission by Buyer to Seller of a written request therefor, Seller shall pay to Buyer such additional amount or amounts as will compensate Buyer for such reduction. A certificate as to the calculation of any additional amounts payable pursuant to this subsection shall be submitted by Buyer to Seller and shall be conclusive and binding upon Seller in the absence of manifest error. This covenant shall survive the termination of the Agreement and the repurchase by Seller of any or all of the Purchased Loans. (q) If any of the events described in Section 3(k), Section 3(l), Section 3(n) or Section 3(o) result in Buyer's election to use the Alternative Rate or Buyer's request for additional amounts, then Seller shall have the option to notify Buyer in writing of its intent to terminate the Transactions and repurchase the Purchased Loans no later than one (1) Business Day after notice is given to Buyer in 25 accordance with Section 3(g). The election by Seller to terminate the Transactions in accordance with this Section 3(q) shall not relieve Seller for liability with respect to any additional amounts or increased costs actually incurred by Buyer prior to the actual repurchase of the Purchased Loans. (r) The facility under the Agreement shall terminate on June 1, 2004; provided that Seller may make a written request not later than 45 days prior to such Facility Termination Date for extension of the term thereof for a period to be agreed by Buyer and Seller, which extension request shall be subject to Buyer's approval in its sole and absolute discretion. Buyer's failure to respond to Seller's written request within 15 days of such request shall be deemed an automatic denial to Seller's request to extend the term of the facility hereunder. (s) From and after the Facility Termination Date, Buyer shall have no further obligation to purchase any New Loans. On the Facility Termination Date, Seller shall be obligated to repurchase all of the Purchased Loans and transfer payment of the aggregate Repurchase Price for each such Purchased Loan, together with the accrued and unpaid Price Differential and all Costs and other amounts due and payable to Buyer hereunder. However, so long as no Event of Default is continuing on the Facility Termination Date (other than failure to pay the aggregate Repurchase Price in full), Seller shall be entitled, upon written notice to Buyer not less than 30 days prior to the Facility Termination Date, to repurchase the Purchased Loans over the Extended Repurchase Period by transferring to the Buyer on each Remittance Date during the Extended Repurchase Period, in addition to accrued Price Differential with respect to the Transactions, the Extended Repurchase Period Monthly Payment. Buyer shall apply the Extended Repurchase Monthly Payment to reduce the Repurchase Price of each Purchased Loan pro rata. During the Extended Repurchase Period, for purposes of calculating the Price Differential for the Transactions, the Applicable Spread shall be increased by 25 basis points. Following the Facility Termination Date, Buyer shall not be obligated to transfer any Purchased Loans to Seller until payment in full to Buyer of all amounts due hereunder; provided, however, upon Seller's request, Buyer shall transfer to Seller the Purchased Loans with respect to which Buyer shall have received the full Repurchase Price and such other amounts payable to Buyer in respect of such Purchased Loans in accordance with the requirements of this Annex I, provided an Event of Default is not then continuing and the transfer of such Purchased Loans would not result in a Margin Deficit. 4. MANDATORY PAYMENT OR DELIVERY OF ADDITIONAL ASSETS Paragraphs 4 (e) and (f) of the Agreement ("Margin Maintenance") shall be deleted in their entirety and Paragraphs 4(a), (b), (c) and (d) of the Agreement are hereby deleted and replaced in their entirety with the following provisions of this Section 4: (a) Buyer may determine and re-determine the Asset Base on any Business Day and on as many Business Days as it may elect. If at any such time the aggregate Repurchase Price of the Portfolio Loans is greater than the aggregate Asset Base as determined by Buyer in its sole discretion and notified to Seller on any Business Day (a "Margin Deficit"), then Seller shall, no later than one (1) Business Day after receipt of such notice, either deliver to Buyer (A) cash (which shall be applied to reduce the Repurchase Price of each Purchased Loan pro rata) or (B) additional assets acceptable to Buyer in its sole and absolute discretion in such amounts that after giving effect to such delivery of cash or other assets, the aggregate Repurchase Price of the Portfolio Loans does not exceed the Asset Base as re-determined by Buyer after giving effect to the delivery of cash (or other assets) by Seller to Buyer pursuant to this Section 4(a). (b) If at any time a Purchased Loan becomes a Defaulted Loan, Buyer may, in its sole discretion and without regard to any determination of the Market Value of such Defaulted Loan, notify Seller that such Purchased Loan has become a Defaulted Loan and require that the related Repurchase 26 Price be paid in whole or in part, in the sole discretion of Buyer. Not later than one (1) Business Day after the receipt of such notice, Seller shall prepay in whole or in part, as applicable, the related Repurchase Price of such Defaulted Loan. Buyer may, in its sole discretion, determine and re-determine the amount to be prepaid irrespective of whether or not any statement of fact contained in any Officer's Certificate delivered pursuant to Section 3(e)(3) or (ii) any representation of Seller set forth in Section 10(a)(xix) was true to Seller's actual knowledge. (c) If at any time the aggregate Repurchase Price of the Portfolio Loans is less than the aggregate Asset Base as determined by Buyer in its sole discretion and notified to Seller on any Business Day Seller requests such notification (a "Margin Excess"), then Seller may, upon providing written notice to Buyer by 3 p.m. on the Business Day prior to the date funds are requested, request that Buyer advance additional funds (not to exceed such Margin Excess) (a "Margin Excess Advance") to Seller in respect of the Purchased Loans. On the date set forth in such request, Buyer shall transfer cash to Seller in the amount of such Margin Excess Advance. Each Margin Excess Advance by Buyer to Seller shall increase the Repurchase Price of one or more Purchased Loans (such aggregate increase not to exceed such Margin Excess Advance) as Buyer shall determine in its sole discretion. (d) To the extent Seller has an obligation to advance additional funds under one or more Purchased Loans, provided a Margin Deficit does not then exist, Buyer agrees to transfer to Seller cash in an amount equal to the product of (i) the amount being advanced by Seller and (ii) the Purchase Percentage for the related Purchased Loan or such lesser amount determined by Buyer, such that after giving effect to the cash transfer, a Margin Deficit would not result. The transfer of cash under this Section 4(d) shall be accounted for as a Margin Excess Advance. 5. INCOME PAYMENTS AND PRINCIPAL PAYMENTS Paragraph 5 of the Agreement ("Income Payments") is hereby deleted and replaced in its entirety by the following provisions of this Section 5: (a) On or before the date hereof, Seller and Buyer shall establish and maintain with the Depository Bank a deposit account owned by, in the name of and under the sole control of Buyer with respect to which the Blocked Account Agreement shall have been executed (such account, together with any replacement or successor thereof, the "Blocked Account") and deliver to Buyer a Blocked Account Agreement. Seller shall cause all Income with respect to the Purchased Loans or other assets (if cash) delivered under Section 4(a) to be deposited in the Blocked Account no later than the next Business Day following its collection and receipt thereof. Simultaneously with the transfer of any Purchased Loan under Section 3, Seller shall deliver to each Mortgagor or obligor (or the related collection account bank, as applicable), or the related lead lender or servicer under a Purchased Loan an irrevocable direction letter in the form attached as Exhibit VII to this Annex I instructing such Person to remit to the Blocked Account all amounts payable to Seller under the related Purchased Loan (unless such Mortgagor or obligor or related servicer or lender is already remitting payments to the Servicer, whereupon Seller shall direct Servicer to remit all such amounts into the Blocked Account and service such payments in accordance with the Servicing Agreement and the provisions hereof) and shall provide to Buyer written proof of such delivery. If a Mortgagor or obligor (or the related collection account bank) or the related lead lender or servicer under a Purchased Loan forwards any Income with respect to such Purchased Loan to Seller rather than directly to the Blocked Account, Seller shall (i) deliver an additional irrevocable direction letter to the applicable Person and make other commercially reasonable efforts to cause such Person to forward such amounts directly to the Blocked Account and (ii) hold such amounts in trust for Buyer and immediately deposit in the Blocked Account any such amounts. All Income in respect of the Portfolio Loans, which may include payments in respect of associated Hedging Transactions entered into by an underlying obligor with respect to a Purchased Loan and pledged to Seller as collateral for a 27 Purchased Loan, shall be deposited directly into, or, if applicable, remitted directly from the applicable underlying collection account to, the Blocked Account. So long as no Event of Default shall have occurred and be continuing, all Income on deposit in the Blocked Account in respect of the Portfolio Loans and the associated Hedging Transactions during each Collection Period shall be remitted to Seller on a daily basis. Upon the occurrence of an Event of Default, Buyer may terminate such remittances and amounts on deposit in the Blocked Account will be applied in accordance with Section 5(c). (b) Seller shall pay to Buyer on each Remittance Date, an amount equal to the aggregate Price Differential which has accrued and is outstanding in respect of the Transactions as of each such Remittance Date and shall pay to Servicer its Servicing Fees and any "Servicing Expenses", "Additional Servicing Compensation" and "Servicing Advances" (as such terms are defined in the Servicing Agreement) in accordance with the terms of the Servicing Agreement. (c) If Seller shall receive a Principal Payment in respect of any Purchased Loan, not later than one (1) Business Day after receipt of such Principal Payment, Seller shall (subject to the provisions of Section 3(j)) pay the Repurchase Price in respect of such Purchased Loan in an amount equal to the greater of (i) the product of the amount of such Principal Payment multiplied by the Purchase Percentage applicable to the related Purchased Loan and (ii) such greater amount, such that after giving effect to such payment of the applicable Repurchase Price, the aggregate Repurchase Price of the Portfolio Loans does not exceed the Asset Base, as determined by Buyer after giving effect to such payment. Seller shall pay to Buyer on the Remittance Date, the full Repurchase Price of any Purchased Loan in respect of which a Principal Payment has been received, or, if the Principal Payment is less than the Repurchase Price, an amount equal to such Principal Payment. (d) If an Event of Default shall have occurred and be continuing, all Income on deposit in the Blocked Account in respect of the Purchased Loans and the associated Hedging Transactions shall be applied on the Business Day next following the Business Day on which such funds are deposited in the Blocked Account as follows: (i) first, to make payment in respect of any outstanding Servicing Fees and "Servicing Expenses", "Additional Servicing Compensation" (other than "Termination Fees") and "Servicing Advances" (as such terms are defined in the Servicing Agreement); (ii) second, to remit to Buyer an amount equal to the Price Differential which has accrued and is outstanding in respect of the Transactions as of such Business Day; (iii) third, to make payment to Buyer in respect of Costs and all other amounts payable by Seller and outstanding hereunder; (iv) fourth, to make a payment to Buyer on account of the aggregate Repurchase Price of the Purchased Loans until the aggregate Repurchase Price for all of the Purchased Loans has been reduced to zero; and (v) fifth, to remit to Seller the remainder. (e) If at any time during the term of any Transaction any Income is distributed to Seller or Seller has otherwise received such Income or Buyer has made a payment in respect of such Income pursuant to this Section 5, and for any reason (other than a breach by Buyer of the Purchased Loan Documents) such amount is required to be returned to an obligor under such Purchased Loan (either before or after the Repurchase Date), Buyer may provide Seller with notice of such required return, and 28 Seller shall pay the amount of such required return to Buyer by 11:00 a.m., New York time, on the Business Day following Seller's receipt of such notice. (f) Subject to the other provisions hereof, Seller shall be responsible for all Costs in respect of any Purchased Loans to the extent it would be so obligated if the Purchased Loans had not been sold to Buyer. Buyer shall provide Seller with notice of any Costs promptly upon receiving such notice, and Seller shall pay the amount of any Costs to Buyer by 11:00 a.m., New York time, on the later of (i) five (5) Business Days after Buyer has informed Seller that such amount is due under the Purchased Loan Documents and (ii) three (3) Business Days following Seller's receipt of such notice. 6. SECURITY INTEREST Paragraph 6 of the Agreement ("Security Interest") is hereby deleted and replaced in its entirety by the following provisions of this Section 6: (a) Buyer and Seller intend that all Transactions hereunder be sales to Buyer of the Purchased Loans for all purposes (other than for U.S. Federal, state and local income or franchise tax purposes) and not loans from Buyer to Seller secured by the Purchased Loans. However, in the event any Transaction is deemed to be a loan, Seller shall be deemed to have pledged to Buyer as security for the performance by Seller of its obligations under such Transaction and shall be deemed to have granted to Buyer a security interest in (i) the Blocked Account, (ii) all of the Purchased Loans (including those identified in Confirmations, (iii) all Income from the Purchased Loans and (iv) all proceeds of all of the foregoing. (b) To the extent Buyer is deemed to have a security interest with respect to the Purchased Loans, and with respect to the security interests granted in subsection (c) of this Section 6, Buyer shall have all of the rights and may exercise all of the remedies of a secured creditor under the UCC and any other applicable law. In furtherance of the foregoing, (1) Seller, at its sole cost and expense, shall cause to be filed as a protective filing with respect to the Purchased Loans and as a UCC filing with respect to the security interests granted in subsection (c)) of this Section 6 (i) a UCC financing statement in the form of Schedule 7-A attached hereto (to be filed in the filing office indicated therein), (ii) amendments to such UCC financing statement in the form of Schedule 7-B attached hereto and having attached to each such UCC financing statement amendment a description of the Purchased Loans which identifies the Purchased Loans by setting forth (a) the name of the borrower with respect to each Purchased Loan, (b) the loan agreement (including the date) or other document, agreement or instrument pursuant to which each Purchased Loan was made or is governed, and (c) the initial or then outstanding principal amount of each Purchased Loan, and (iii) such other UCC filings, in such locations as may be necessary to perfect and maintain perfection and priority of the outright transfer and the security interest granted hereby (including under Section 22 of this Annex I) and, in each case, continuation statements and any amendments thereto (collectively, the "Filings"), and shall forward copies of such Filings to Buyer upon completion thereof, and (b) Seller shall from time to time, at its own expense, deliver and cause to be duly filed all such further filings, instruments and documents and take all such further actions as may be necessary or desirable or as may be requested by Buyer with respect to the perfection and priority of the outright transfer of the Purchased Loans and the security interest deemed granted hereunder and in the Purchased Loans and the rights and remedies of the Buyer with respect to the Purchased Loans (including under Section 22 of this Annex I) (including the payments of any fees and taxes required in connection with the execution and delivery of the Agreement). (c) Seller hereby pledges to Buyer, as security for the performance by Seller of its obligations under all Transactions, all Hedging Transactions relating to Purchased Loans entered into by Seller and all proceeds thereof. Seller shall take all action as is necessary or desirable to obtain consent to 29 assignment of any such Hedging Transaction to Buyer and shall cause the counterparty under each such Hedging Transaction to enter into such document or instrument satisfactory to Buyer, Seller and such counterparty, pursuant to which such counterparty will covenant and agree to accept notice from Buyer to redirect payments under such Hedging Transaction as Buyer may direct. So long as no Event of Default shall be continuing, Buyer agrees that it will not redirect payments under any Hedging Transaction pledged to Buyer pursuant to the terms of this Section 6(c). 7. PAYMENT, TRANSFER AND CUSTODY Paragraph 7 of the Agreement ("Payment and Transfer") is hereby deleted and replaced in its entirety by the following provisions of this Section 7: (a) Subject to the terms and conditions of the Agreement, on the Purchase Date for each Transaction, ownership of the Purchased Loans and all rights thereunder shall be transferred to Buyer or its designee (including the Custodian) against the simultaneous transfer of the Purchase Price to an account of Seller specified in the Confirmation relating to such Transaction. On the Purchase Date for the first Transaction, Buyer will provide Seller with a power of attorney, substantially in the form attached as Exhibit IV-2 hereto, in recordable form, allowing Seller to administer, operate and service such Purchased Loans. The power of attorney shall be binding upon Buyer and Buyer's successors and assigns. (b) With respect to each Table Funded Purchased Loan, Seller shall cause the Bailee to deliver to the Custodian (with a copy to Buyer) by no later than 1:00 p.m. (New York time), on the Purchase Date, by facsimile the related promissory note (or the participation certificate, as applicable), the Insured Closing Letter and Escrow Instructions, if any, the Bailee Agreement and a Trust Receipt issued by the Bailee thereunder on or before the related Purchase Date. In connection with the sale of each Purchased Loan, not later than 1:00 p.m., two (2) Business Days prior to the related Purchase Date (or on the related Purchase Date, as may be agreed by Buyer and Seller on a case by case basis) (or with respect to a Table Funded Purchased Loan not later than 1:00 p.m. (New York time) on the third Business Day following the applicable Purchase Date), Seller shall deliver or cause Bailee to deliver (with a copy to Buyer) and release to the Custodian (together with the Custodial Delivery in the form attached hereto as Exhibit III), and shall cause the Custodian to deliver a Trust Receipt on the Purchase Date (or in the case of a Table Funded Purchased Loan, not later than two (2) Business Days following the receipt by the Custodian) confirming the receipt of the following original documents (collectively, the "Purchased Loan File"), pertaining to each of the Purchased Loans identified in the Custodial Delivery delivered therewith: (i) With respect to each Purchased Loan that is a Mortgage Loan (including a First Mortgage B Note), the following documents, as applicable: (A) The original Mortgage Note bearing all intervening endorsements, endorsed "Pay to the order of _________ without recourse" and signed in the name of the last endorsee (the "Last Endorsee") by an authorized Person (in the event that the Purchased Loan was acquired by the Last Endorsee in a merger, the signature must be in the following form: "[Last Endorsee], successor by merger to [name of predecessor]"; in the event that the Purchased Loan was acquired or originated by the Last Endorsee while doing business under another name, the signature must be in the following form: "[Last Endorsee], formerly known as [previous name]") or a lost note affidavit in a form reasonably approved by Buyer, with a copy of the applicable Mortgage Note attached thereto. (B) The original or a copy of the loan agreement and the guarantee, if any, executed in connection with the Purchased Loan. 30 (C) The original Mortgage with evidence of recording thereon, or a copy thereof together with an officer's certificate of Seller certifying that such represents a true and correct copy of the original and that such original has been submitted for recordation in the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located. (D) The originals of all assumption, modification, consolidation or extension agreements with evidence of recording thereon, or copies thereof together with an officer's certificate of Seller certifying that such represent true and correct copies of the originals and that such originals have each been submitted for recordation in the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located. (E) The original Assignment of Mortgage to Buyer for each Purchased Loan, in form and substance acceptable for recording and signed in the name of the Last Endorsee (in the event that the Purchased Loan was acquired by the Last Endorsee in a merger, the signature must be in the following form: "[Last Endorsee], successor by merger to [name of predecessor]"; in the event that the Purchased Loan was acquired or originated while doing business under another name, the signature must be in the following form: "[Last Endorsee], formerly known as [previous name]"). (F) The originals of all intervening assignments of mortgage with evidence of recording thereon, or copies thereof together with an officer's certificate of Seller certifying that such represent true and correct copies of the originals and that such originals have each been submitted for recordation in the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located. (G) The original attorney's opinion of title and abstract of title or the original mortgagee title insurance policy, or if the original mortgagee title insurance policy has not been issued, the irrevocable marked commitment to issue the same. (H) The original of any security agreement, chattel mortgage or equivalent document executed in connection with the Purchased Loan. (I) The original Assignment of Leases, if any, with evidence of recording thereon, or a copy thereof together with an officer's certificate of Seller, certifying that such copy represents a true and correct copy of the original that has been submitted for recordation in the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located. (J) The originals of all intervening assignments of assignment of leases and rents, if any, or copies thereof, with evidence of recording thereon, or copies thereof together with an officer's certificate of Seller certifying that such represent true and correct copies of the originals and that such originals have each been submitted for recordation in the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located. (K) A copy of the UCC financing statements, certified as true and correct by Seller, and all necessary UCC continuation statements with evidence of filing thereon or copies thereof certified by Seller to have been sent for filing, and UCC assignments to 31 Buyer, which UCC assignments shall be in form and substance acceptable for filing in the applicable jurisdictions. (L) An environmental indemnity agreement or similar guaranty or indemnity, whether stand-alone or incorporated into the applicable loan documents (if any). (M) An omnibus assignment to Buyer or other documents necessary and sufficient to transfer to Buyer all of Seller's right, title and interest in and to the Purchased Loan (if any). (N) A disbursement letter from the Mortgagor to the original mortgagee or other evidence that the Purchased Loan has been fully disbursed (if applicable). (O) Mortgagor's certificate or title affidavit (if any). (P) A survey of the Mortgaged Property (if any) as accepted by the title company for issuance of the Title Policy. (Q) The original of any participation agreement, intercreditor agreement and/or servicing agreement executed in connection with such Purchased Loan. (R) A copy of all servicing agreements and Servicing Records related to such Purchased Loan, which Seller shall deliver to Servicer (with a copy to Buyer). (S) A copy of the Mortgagor's opinions of counsel. (T) An assignment of any management agreements, permits, contracts and other material agreements (if any). (U) Reports of UCC, tax lien, judgment and litigation searches as requested by Buyer, conducted by search firms reasonably acceptable to Buyer with respect to the Purchased Loan, Seller and the related underlying obligor, such searches to be conducted in each location Buyer shall reasonably designate and such reports reasonably satisfactory to Buyer. (V) If the Mortgagor is an Affiliate of Seller, pledge agreement and any UCC financing statements, executed by the owner(s) of all the equity interests of the Mortgagor as debtor in favor of Seller as secured party (which pledge agreement and UCC financing statements shall be assigned by Seller to Buyer), covering all equity interests in the Mortgagor, if not previously delivered to Buyer, together with any related original certificates of equity ownership and blank assignments thereof, all to give Buyer a security interest in such equity as additional collateral for Seller's obligations. (W) The original or a copy of the intercreditor or loan coordination agreement (if any) executed in connection with the Purchased Loan to the extent the subject borrower, or an affiliate thereof, has encumbered its assets with senior, junior or similar financing, whether mortgage financing or mezzanine loan financing. (X) Copies of all documents relating to the formation and organization of the related obligor under such Purchased Loan, together with all consents and resolutions delivered in connection with such obligor's obtaining such Purchased Loan. 32 (Y) All other material documents and instruments evidencing, guaranteeing, insuring or otherwise constituting or modifying or otherwise affecting such Purchased Loan, or otherwise executed or delivered in connection with, or otherwise relating to, such Purchased Loan, including all documents establishing or implementing any lockbox pursuant to which Seller is entitled to receive any payments from cash flow of the underlying real property. If Seller cannot deliver, or cause to be delivered, any of the documents and/or instruments required above to be delivered as originals, Seller shall deliver a photocopy thereof and, unless waived by Buyer, an Officer's Certificate of Seller certifying that such copy represents a true and correct copy of the original. Seller shall then, in the event that Seller has a legitimate and reasonable opportunity to obtain the original documents in question if the document in question exists in original form (1) use reasonable efforts to obtain and deliver the original document within 180 days after the related Purchase Date (or such longer period after the related Purchase Date as Buyer may consent to, which consent shall not be unreasonably withheld so long as Seller is, as certified in writing to Buyer no less often than monthly, in good faith attempting to obtain the original) and (2) after the expiration of such reasonable efforts period, deliver to Buyer a certification that states, despite Seller's reasonable efforts, Seller was unable to obtain such original document. (ii) With respect to each Purchased Loan which is a Mezzanine Loan secured by a pledge of the equity ownership interests in an entity that owns Eligible Property, the following, as applicable: (A) The original Mezzanine Note signed in connection with the Purchased Loan bearing all intervening endorsements, endorsed "Pay to the order of __________ without recourse" and signed in the name of the Last Endorsee by an authorized Person (in the event that the Mezzanine Note was acquired by the Last Endorsee in a merger, the signature must be in the following form: "[Last Endorsee], successor by merger to [name of predecessor]"; in the event that the Purchased Loan was acquired or originated by the Last Endorsee while doing business under another name, the signature must be in the following form: "[Last Endorsee], formerly known as [previous name]") or a lost note affidavit in a form reasonably approved by Buyer with a copy of the applicable Mezzanine Note attached thereto. (B) The original or a copy of the loan agreement and the guarantee, if any, executed in connection with the Purchased Loan. (C) The original or a copy of the intercreditor or loan coordination agreement executed in connection with the Purchased Loan to the extent the subject borrower, or an affiliate thereof, has encumbered its assets with senior, junior or similar financing, whether mortgage financing or mezzanine loan financing. (D) The original security agreement executed in connection with the Purchased Loan. (E) Copies of all documents relating to the formation and organization of the borrower under such Purchased Loan, together with all consents and resolutions delivered in connection with such borrower's obtaining the Purchased Loan. (F) All other material documents and instruments evidencing, guaranteeing, insuring or otherwise constituting or modifying or otherwise affecting such Purchased 33 Loan, or otherwise executed or delivered in connection with, or otherwise relating to, such Purchased Loan, including all documents establishing or implementing any lockbox pursuant to which Seller is entitled to receive any payments from cash flow of the underlying real property. (G) An omnibus assignment to Buyer or other documents necessary and sufficient to transfer to Buyer all of Seller's right, title and interest in and to the Purchased Loan. (H) The original of any participation agreement, intercreditor agreement and/or servicing agreement executed in connection with such Purchased Loan. (I) A copy of all servicing agreements and Servicing Records related to such Purchased Loan, which Seller shall deliver to Servicer (with a copy to Buyer). (J) A copy of the borrower's opinions of counsel. (K) A copy of the UCC financing statements, certified as true and correct by Seller, and all necessary UCC continuation statements with evidence of filing thereon or copies thereof certified by Seller to have been sent for filing, and UCC assignments to Buyer, which UCC assignments shall be in form and substance acceptable for filing in the applicable jurisdictions. (L) The original certificates representing the pledged equity interests to the extent applicable. (M) Stock or similar powers relating to each pledged equity interest, executed in blank, if such equity interests are in certificated form. (N) Assignment of any management agreements, agreements among equity interest holders or other material contracts. (O) If the pledged equity interests are not certificated, evidence (which may be an Officer's Certificate confirming such circumstances or in the form of an executed instruction to register such pledge by the mezzanine borrower and acknowledgment by the entity in which such pledged equity interests are held) that the pledged equity interests have been transferred to, or otherwise made subject to a first priority security interest in favor of, Seller. (P) Copies of all material documents evidencing or securing the related mortgage loan and any other documents affecting the related mortgaged property to the extent in possession of Seller. (Q) If the mezzanine borrower is an Affiliate of Seller, a pledge agreement and any UCC financing statements, executed by the owner(s) of all the equity interests of the mezzanine borrower as debtor in favor of Seller as secured party (which pledge agreement and UCC financing statements shall be transferred by Seller to Buyer), covering all equity interests in the mezzanine borrower, if not previously delivered to Buyer, together with any related original certificates of equity ownership and blank assignments thereof, all to give Buyer a security interest in such equity as additional collateral for Seller's obligations. 34 (R) Evidence that the Purchased Loan has been fully disbursed (if applicable). If Seller cannot deliver, or cause to be delivered, any of the documents and/or instruments referred to above, required to be delivered as originals, Seller shall deliver a photocopy thereof and, unless waived by Buyer, an Officer's Certificate of Seller certifying that such copy represents a true and correct copy of the original. Seller shall then, in the event that Seller has a legitimate and reasonable opportunity to obtain the original documents in question if the document in question exists in original form (1) use reasonable efforts to obtain and deliver the original document within 180 days after the related Purchase Date (or such longer period after the related Purchase Date as Buyer may consent to, which consent shall not be unreasonably withheld so long as Seller is, as certified in writing to Buyer no less often than monthly, in good faith attempting to obtain the original) and (2) after the expiration of such reasonable efforts period, deliver to Buyer a certification that states, despite Seller's reasonable efforts, Seller was unable to obtain such original document. (iii) With respect to each Purchased Loan which is of the type described in clause (iv) of the definition of Eligible Loan, any of the documentation referred to above in Section 7(b)(i) and (ii) which is reasonably determined by the Buyer to be necessary to effectuate the sale, transfer, conveyance and assignment of such Purchased Loan. (c) From time to time, Seller shall forward to the Custodian additional original documents or additional documents evidencing any assumption, modification, consolidation or extension of a Purchased Loan approved in accordance with the terms of the Agreement, and upon receipt of any such other documents, the Custodian shall hold such other documents on behalf of Buyer and as Buyer shall request from time to time. With respect to any documents which have been delivered or are being delivered to recording offices for recording and have not been returned to Seller in time to permit their delivery hereunder at the time required, in lieu of delivering such original documents, Seller shall deliver to Buyer a true copy thereof with an officer's certificate certifying that such copy is a true, correct and complete copy of the original, which has been transmitted for recordation. Seller shall deliver such original documents to the Custodian promptly when they are received. With respect to all of the Purchased Loans delivered by Seller to Buyer or its designee (including the Custodian), Seller shall execute an omnibus power of attorney substantially in the form of Exhibit IV-1 attached hereto irrevocably appointing Buyer its attorney-in-fact with full power to (i) complete and record any Assignment of Mortgage, (ii) complete the endorsement of any Mortgage Note or Mezzanine Note and (iii) take such other steps as may be necessary or desirable to enforce Buyer's rights against any Purchased Loans and the related Purchased Loan Files and the Servicing Records. Buyer shall deposit the Purchased Loan Files representing the Purchased Loans, or cause the Purchased Loan Files to be deposited directly, with the Custodian to be held by the Custodian on behalf of Buyer. The Purchased Loan Files shall be maintained in accordance with the Custodial Agreement. Any Purchased Loan Files not delivered to Buyer or its designee (including the Custodian) are and shall be held in trust by Seller or its designee for the benefit of Buyer as the owner thereof. Seller or its designee shall maintain a copy of the Purchased Loan File and the originals of the Purchased Loan File not delivered to Buyer or its designee. The possession of the Purchased Loan File by Seller or its designee is at the will of Buyer for the sole purpose of servicing the related Purchased Loan, and such retention and possession by Seller or its designee is in a custodial capacity only. The books and records (including, without limitation, any computer records or tapes) of Seller or its designee shall be marked appropriately to reflect clearly the transfer, subject to the terms and conditions of the Agreement, of the related Purchased Loan to Buyer. Seller or its designee (including the Custodian) shall release its custody of the Purchased Loan File only in accordance with written instructions from Buyer, unless such release is required as incidental to the servicing of the Purchased Loans or is in connection with a repurchase of any Purchased Loan by Seller or is pursuant to the order of a court of competent jurisdiction. 35 (d) In addition to any documents or instruments that are required to be delivered by Seller to Buyer hereunder in connection with the transfer of Purchased Loans by Seller to Buyer, on the date of the Agreement, Buyer shall have received all of the following items and documents, each of which shall be satisfactory to Buyer in form and substance: (i) Transaction Documents. (A) The Agreement (including this Annex I), duly executed and delivered by Seller and Buyer; (B) The Custodial Agreement, duly executed and delivered by Seller, Buyer and Custodian; (C) The Fee Letter, duly executed and delivered by Seller and Buyer; (D) The Blocked Account Agreement, duly executed and delivered by Seller, Buyer and Depository Bank; and (E) The Servicing Agreement, duly executed and delivered by Seller, Buyer and Servicer. (ii) Organizational Documents. Certified copies of the Seller's organizational documents and resolutions or other documents evidencing the authority of Seller with respect to the execution, delivery and performance of the Transaction Documents to which it is a party and each other document to be delivered by Seller from time to time in connection with the Transaction Documents (and Buyer may conclusively rely on such certifications until it receives notice in writing from Seller to the contrary); (iii) Legal Opinion. An opinion of counsel to the Seller as to the enforceability of the Agreement (including this Annex I) and the other documents executed and delivered in connection herewith; and (iv) Other Documents. Such other documents as Buyer may reasonably request. 8. CERTAIN RIGHTS OF BUYER WITH RESPECT TO THE PURCHASED LOANS Paragraph 8 of the Agreement ("Segregation of Purchased Securities") is hereby deleted and replaced in its entirety by the following provisions of this Section 8: (a) Subject to the terms and conditions of the Agreement, title to all Purchased Loans shall pass to Buyer on the applicable Purchase Date, and Buyer shall have free and unrestricted use of its interest in the Purchased Loans in accordance with the terms and conditions of the Purchased Loans. Nothing in the Agreement or any other Transaction Document shall preclude Buyer from engaging in repurchase transactions with the Purchased Loans with Persons in conformity with the terms and conditions of the Purchased Loans or otherwise selling, transferring, pledging, repledging, hypothecating, or rehypothecating all or a portion of its interest in the Purchased Loans to Persons in conformity with the terms and conditions to the Purchased Loans, but no such transaction shall relieve Buyer of its obligations to transfer the Purchased Loans to Seller pursuant to Section 3 of this Annex I or of Buyer's obligation to credit or pay Income to, or apply Income to the obligations of, Seller pursuant to Section 5 of this Annex I or otherwise affect the rights, obligations and remedies of any party to the Agreement. Any such repurchase transaction and any pledge, repledge, hypothecation or rehypothecation in connection with a 36 Financing Transaction may be to any Person other than a Disqualified Transferee; provided that Buyer, other than in connection with a Financing Transaction, may assign or participate its rights' under the Transaction Documents or any Transaction only in accordance with Section 17 of this Annex I, unless an Event of Default shall have occurred and be continuing or the prior written consent of Seller has been obtained by Buyer. (b) Subject to the terms and conditions of the Agreement, any documents delivered to the Custodian pursuant to Section 7(b) and 7(c) of this Annex I shall only be released in accordance with the terms and conditions of the Custodial Agreement. 9. SUBSTITUTION Paragraph 9 of the Agreement ("Substitution") is hereby deleted and replaced in its entirety by the following provisions of this Section 9: (a) In the case of any Transaction for which the Repurchase Date is other than the Business Day immediately following the Purchase Date, Seller shall have the right, subject to the proviso to this sentence, upon notice to Buyer, which notice shall be given at or prior to 10:00 a.m. (New York time) on such Business Day, to substitute substantially the same Eligible Loans for any Purchased Loans, provided, however, that Buyer may elect, by the close of business on the Business Day notice is received, or by the close of the next Business Day if notice is given after 10:00 a.m. (New York time) on such day, not to accept such substitution in its sole and absolute discretion. In the event such substitution is accepted by Buyer, such substitution shall be made by Seller's transfer to Buyer of such other Eligible Loans and Buyer's transfer to Seller of such Purchased Loans, and after substitution, the substituted Eligible Loans shall be deemed to be Purchased Loans subject to the terms of the Agreement (including but not limited to the margin provisions of Section 4 of this Annex I). Each such substitution shall be deemed to be a representation and warranty by Seller that each substitute loan is an Eligible Loan and that after giving effect to such substitution, the aggregate Repurchase Price of the Portfolio Loans shall not exceed the aggregate Asset Base. In the event Buyer elects not to accept such substitution, Buyer shall offer Seller the right to terminate the Transaction. (b) In the event Seller exercises its right to substitute or terminate under sub-paragraph (a), Seller shall be obligated to pay to Buyer, by the close of the Business Day of such substitution or termination, as the case may be, an amount equal to (A) Buyer's actual out-of-pocket cost (including all fees (including reasonable attorneys fees), expenses and commissions) of (i) entering into replacement transactions; (ii) entering into or terminating hedge transactions; and/or (iii) terminating transactions or substituting mortgage loans in like transactions with third parties in connection with or as a result of such substitution or termination, and (B) to the extent Buyer determines not to enter replacement transactions, the loss incurred by Buyer directly arising or resulting from such substitution or termination. The foregoing amounts shall be solely determined and calculated by Buyer in good faith. 10. REPRESENTATIONS Paragraph 10 of the Agreement ("Representations") is hereby supplemented by the following: (a) Seller represents and warrants to Buyer that as of the Purchase Date for the purchase of any Purchased Loan by Buyer from Seller and any Transaction thereunder and as of the date of the Agreement and at all times while the Agreement and any Transaction thereunder is in full force and effect: 37 (i) Organization. Seller is duly organized, validly existing and in good standing under the laws and regulations of the state of Seller's organization and is duly licensed, qualified, and in good standing in every state where such licensing or qualification is necessary for the transaction of Seller's business, except where lack of such licenses or qualifications would not be reasonably likely to result in a Material Adverse Effect. Seller has the power to own and hold the assets it purports to own and hold, and to carry on its business as now being conducted and proposed to be conducted, and has the power to execute, deliver, and perform its obligations under the Agreement and the other Transaction Documents. (ii) Due Execution; Enforceability. The Transaction Documents have been duly executed and delivered by Seller, for good and valuable consideration. The Transaction Documents constitute the legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms subject to bankruptcy, insolvency, and other limitations on creditors' rights generally and to equitable principles. (iii) Non-Contravention; Consents. Neither the execution and delivery of the Transaction Documents, nor consummation by Seller of the transactions contemplated by the Transaction Documents (or any of them), nor compliance by Seller with the terms, conditions and provisions of the Transaction Documents (or any of them) will (x) conflict with or result in a breach or violation of any of the terms, conditions or provisions of any judgment or order, writ, injunction, decree or demand of any court applicable to Seller, or (y) result in the creation or imposition of any lien or any other encumbrance upon any of the assets of Seller, other than pursuant to the Transaction Documents. Seller has all necessary licenses, permits and other consents from Governmental Authorities necessary to acquire, own and sell the Portfolio Loans and for the performance of its obligations under the Transaction Documents except where the failure to have any such license, permit or consent would not be reasonably likely to result in a Material Adverse Effect. (iv) Litigation; Requirements of Law. There is no action, suit, proceeding, investigation, or arbitration pending or, to the best knowledge of Seller, threatened against Seller, or any of its assets which may result in any Material Adverse Effect, or which may have an adverse effect on the validity of the Transaction Documents or any action taken or to be taken in connection with the obligations of Seller under any of the Transaction Documents. Seller is in compliance in all material respects with all Requirements of Law. Seller is not in default in any material respect with respect to any judgment, order, writ, injunction, decree, rule or regulation of any arbitrator or Governmental Authority. (v) No Broker. Seller has not dealt with any broker, investment banker, agent or other Person (other than Buyer or an Affiliate of Buyer) who may be entitled to any commission or compensation in connection with the sale of the Purchased Loans pursuant to any Transaction Documents. (vi) Good Title to Purchased Loans. Immediately prior to the purchase of any Purchased Loans by Buyer from Seller, such Purchased Loans are free and clear of any lien, security interest, claim, option, charge, encumbrance or impediment to transfer (including any "adverse claim" as defined in Section 8-102(a)(1) of the UCC), and are not subject to any rights of setoff, any prior sale, transfer, assignment, or participation by Seller or any agreement by Seller to assign, convey, transfer or participate, in whole or in part, and Seller is the sole legal record and beneficial owner of and owns and has the right to sell and transfer such Purchased Loans to Buyer and, upon transfer of such Purchased Loans to Buyer, Buyer shall be the owner of such Purchased Loans (other than for U.S. Federal, state and local income and franchise tax 38 purposes) free of any adverse claim, subject to Seller's rights pursuant to the Agreement. In the event the related Transaction is recharacterized as a secured financing of the Purchased Loans and with respect to the security interests granted in Sections 6(c) and 6(d), the provisions of the Agreement are effective to create in favor of Buyer a valid security interest in all rights, title and interest of Seller in, to and under the Purchased Loans and the collateral specified in Sections 6(c) and 6(d), Buyer shall have a valid, perfected and enforceable first priority security interest in the Purchased Loans and such other collateral, subject to no lien or rights of others other than as granted herein. (vii) No Default. No Default or Event of Default exists under or with respect to the Transaction Documents. (viii) Representations and Warranties Regarding Purchased Loans; Delivery of Purchased Loan File. Seller represents and warrants to Buyer that each Purchased Loan sold hereunder and each pool of Purchased Loans sold in a Transaction hereunder, as of the applicable Purchase Date for the Transaction in question conforms to the applicable representations and warranties set forth in Exhibit V attached hereto, except shall have been disclosed to Buyer in writing prior to Buyer's issuance of a Confirmation with respect to the related Purchased Loan. It is understood and agreed that the representations and warranties set forth in Exhibit V hereto, if any, shall survive delivery of the respective Purchased Loan File to Buyer or its designee (including the Custodian). With respect to each Purchased Loan, the Mortgage Note or Mezzanine Note, the Mortgage (if any), the Assignment of Mortgage (if any) and any other documents required to be delivered under the Agreement and the Custodial Agreement for such Purchased Loan have been delivered (or with respect to Table Funded Loans shall be delivered in accordance with Section 7(b)) to Buyer or the Custodian on its behalf or such requirement will have been expressly waived in writing by Buyer. Seller or its designee is in possession of a complete, true and accurate Purchased Loan File with respect to each Purchased Loan, except for such documents the originals of which have been delivered to the Custodian. (ix) Adequate Capitalization; No Fraudulent Transfer. Seller has, as of such Purchase Date, adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations. Seller is generally able to pay, and as of the date hereof is paying, its debts as they come due. Seller has not become, or is presently, financially insolvent nor will Seller be made insolvent by virtue of Seller's execution of or performance under any of the Transaction Documents within the meaning of the bankruptcy laws or the insolvency laws of any jurisdiction. Seller has not entered into any Transaction Document or any Transaction pursuant thereto in contemplation of insolvency or with intent to hinder, delay or defraud any creditor. Seller has not received any written notice that any payment or other transfer made to or on account of Seller from or on account of any Mortgagor or any other person obligated under any Purchased Loan Documents is or may be void or voidable as an actual or constructive fraudulent transfer or as a preferential transfer. (x) Organizational Documents. Seller has delivered to Buyer certified copies of its organizational documents, together with all amendments thereto. (xi) No Encumbrances. There are (i) no outstanding rights, options, warrants or agreements on the part of Seller for a purchase, sale or issuance, in connection with the Purchased Loans and (ii) no agreements on the part of Seller to issue, sell or distribute the Purchased Loan. (xii) Federal Regulations. Seller is not (A) an "investment company," or a company "controlled by an investment company," within the meaning of the Investment Company Act of 39 1940, as amended, or (B) a "holding company," or a "subsidiary company of a holding company," or an "affiliate" of either a "holding company" or a "subsidiary company of a holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. (xiii) Taxes. Seller has filed or caused to be filed all tax returns which would be delinquent if they had not been filed on or before the date hereof and has paid all taxes due and payable on or before the date hereof and all other taxes, fees or other charges imposed on it and any of its assets by any Governmental Authority; no tax liens have been filed against any of Seller's assets and, to Seller's knowledge, no claims are being asserted with respect to any such taxes, fees or other charges. (xiv) ERISA. Neither Seller nor any ERISA Affiliate (a) sponsors or maintains any Plans or (b) makes any contributions to or has any liabilities or obligations (direct or contingent) with respect to any Plans. Seller does not, and would not be deemed to, hold Plan Assets and the consummation of the transactions contemplated by the Agreement will not constitute or result in any non-exempt prohibited transaction under Section 406 of ERISA, Section 4975 of the Code or substantially similar provisions under any other federal, state or local laws, rules or regulations. (xv) Judgments/Bankruptcy. Except as disclosed in writing to Buyer, there are no judgments against Seller or unsatisfied of record or docketed in any court located in the United States of America and no Act of Insolvency has ever occurred with respect to Seller. (xvi) Full and Accurate Disclosure. No information contained in the Transaction Documents, or any written statement furnished by or on behalf of Seller pursuant to the terms of the Transaction Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made when such statements and omissions are considered in the totality of the circumstances in question. (xvii) Financial Information. All financial data concerning Seller and to Seller's knowledge after due inquiry, the Purchased Loans that has been delivered by or on behalf of Seller to Buyer is true, complete and correct in all material respects and has been prepared in accordance with GAAP. Since the delivery of such data, except as otherwise disclosed in writing to Buyer, there has been no change in the financial position of Seller or the Purchased Loans, or in the results of operations of Seller, which change is reasonably likely to have in a Material Adverse Effect on Seller. (xviii) Jurisdiction of Organization. The Seller's jurisdiction of organization is the State of Maryland. (xix) Regulation T, U and X. Neither the entering into or consummation of any Transaction hereunder, nor the use of the proceeds thereof, will violate any provisions of Regulation T, U or X. If requested by Buyer, Seller, any applicable Affiliate of Seller and the recipient of any portion of the proceeds of, or any portion of, any Transaction shall furnish to Buyer a statement on Federal Reserve Form G-3 referred to in Regulation U. (b) On the Purchase Date for any Transaction, Seller shall be deemed to have made all of the representations set forth in Paragraph 10 of the Agreement and Section 10(a) of this Annex I as of such Purchase Date. 40 11. NEGATIVE COVENANTS OF SELLER On and as of the date hereof and each Purchase Date and until the Agreement is no longer in force with respect to any Transaction, Seller shall not without the prior written consent of Buyer: (a) subject to Seller's right to repurchase, take any action which would directly or indirectly impair or adversely affect Buyer's title to the Purchased Loans; (b) transfer, assign, convey, grant, bargain, sell, set over, deliver or otherwise dispose of, or pledge or hypothecate, directly or indirectly, any interest in the Purchased Loans (or any of them) to any Person other than Buyer, or engage in repurchase transactions or similar transactions with respect to the Purchased Loans (or any of them) with any Person other than Buyer, except where the Purchased Loans in question are simultaneously repurchased from Buyer; (c) create, incur or permit to exist any lien, encumbrance or security interest in or on the Purchased Loans, except as described in Section 6 of this Annex I; (d) create, incur or permit to exist any lien, encumbrance or security interest in or on any of the other collateral subject to the security interest granted by Seller pursuant to Section 6 of this Annex I; (e) create, incur or permit any lien, security interest, charges, or encumbrances with respect to any Hedging Transaction for the benefit of any Person other than Buyer; (f) terminate any of the organizational documents of Seller; (g) consent or assent to a Significant Modification or any extension or or termination of any note, loan agreement, mortgage, pledge agreement or guaranty relating to the Purchased Loans or other material agreement or instrument relating to the Purchased Loans without the prior written consent of Buyer; (h) take any action or permit such action to be taken which would result in a Change in Control; (i) after the occurrence and during the continuation of any Event of Default or monetary Default, make any distribution, payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity or ownership interest of Seller, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Seller; or (j) sponsor or maintain any Plans or make any contributions to, or have any liability or obligation (direct or contingent) with respect to any Plan and shall not permit any ERISA Affiliate to sponsor or maintain any Plans or make any contributions to, or have any liability or obligation (direct or contingent) with respect to any Plan; (k) engage in any transaction that would cause any obligation or action taken or to be taken hereunder (or the exercise by Buyer of any of its rights under the Agreement, the Purchased Loans or any Transaction Document) to be a non-exempt prohibited transaction under Section 406 of ERISA, Section 4975 of the Code or substantially similar provisions under any other federal, state or local laws, rules or regulations; or (l) make any future advances under any Purchased Loan to any underlying obligor which are not permitted by the related Purchased Loan Documents. 41 12. AFFIRMATIVE COVENANTS OF SELLER (a) Seller shall promptly notify Buyer of any event and/or condition which is likely to have a Material Adverse Effect. (b) Seller shall give notice to Buyer of the following (accompanied by an Officer's Certificate setting forth details of the occurrence referred to therein and stating what actions Seller has taken or proposes to take with respect thereto): (i) promptly upon receipt of notice or knowledge of the occurrence of any Default or Event of Default; (ii) with respect to any Purchased Loan sold to Buyer hereunder, immediately upon receipt of any Principal Payment (in full or in part); (iii) with respect to any Purchased Loan sold to Buyer hereunder, immediately upon receipt of notice or knowledge that the related Mortgaged Property has been damaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, or otherwise damaged so as to affect adversely the value of such Mortgaged Property; (iv) promptly upon receipt of notice or knowledge of (i) any Purchased Loan which becomes a Defaulted Loan, (ii) any lien or security interest (other than security interests created hereby) on, or claim asserted against, any Purchased Loan or, to Seller's knowledge, the underlying collateral therefor or (iii) any event or change in circumstances that has or could reasonably be expected to have an adverse affect on the Market Value of a Purchased Loan; and (v) promptly, and in any event within 10 days after service of process on any of the following, give to Buyer notice of all litigation, actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are pending or threatened) or other legal or arbitrable proceedings affecting Seller or affecting any of the assets of Seller before any Governmental Authority that (i) questions or challenges the validity or enforceability of any of the Transaction Documents or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim or claims in an aggregate amount greater than $5,000,000, or (iii) which, individually or in the aggregate, if adversely determined could reasonably be likely to have a Material Adverse Effect. (c) Seller shall provide Buyer with copies of such documents as Buyer may reasonably request evidencing the truthfulness of the representations set forth in Section 10. (d) Seller shall defend the right, title and interest of Buyer in and to the Purchased Loans against, and take such other action as is necessary to remove, the liens, security interests, claims, encumbrances, charges and demands of all Persons (other than security interests granted to Buyer hereunder). (e) Seller will permit Buyer or its designated representative to inspect any of Seller's records with respect to all or any portion of the Purchased Loans and the conduct and operation of its business related thereto, at such reasonable times and with reasonable frequency requested by Buyer or its designated representative, and to make copies of extracts of any and all thereof. (f) If any amount payable under or in connection with any of the Purchased Loans shall be or become evidenced by any promissory note, other instrument or chattel paper (as each of the foregoing is defined under the UCC), such note, instrument or chattel paper shall be immediately delivered to Buyer or its designee, duly endorsed in a manner satisfactory to Buyer or if any collateral or other security shall subsequently be delivered to Seller in connection with any Purchased Loan, Seller shall immediately 42 deliver or forward such item of collateral or other security to Buyer or its designee, together with such instruments of assignment as Buyer may request. (g) Seller shall provide (or cause to be provided to) Buyer with the following financial and reporting information: (i) the Monthly Statement; (ii) within the later of 30 days after the end of each calendar quarter or 10 days of Seller's receipt, all operating statements and occupancy information that Seller or Servicer has received for the previous quarter relating to the Portfolio Loans and within the later of 45 days after the last day of each calendar quarter or 10 days of Seller's receipt, the remainder of the operating statements and occupancy information for the previous quarter relating to the Portfolio Loans; (iii) as soon as available and in any event within forty-five (45) days after the end of each of the first three quarterly fiscal periods of each fiscal year of Seller, the unaudited, consolidated balance sheets of Seller, which shall incorporate its consolidated subsidiaries, as at the end of such period and the related unaudited, consolidated statements of income and retained earnings and of cash flows for Seller, which shall incorporate its consolidated Subsidiaries, for such period and the portion of the fiscal year through the end of such period, accompanied by an Officer's Certificate of Seller, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations Seller and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (iv) as soon as available and in any event within ninety (90) days after the end of each fiscal year of Seller, the consolidated balance sheets of Seller, which shall incorporate its consolidated Subsidiaries, as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for Seller, which shall incorporate its consolidated Subsidiaries, for such year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not be qualified as to scope of audit or going concern and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of Seller and its consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP; (v) within forty-five (45) days following the end of each quarter, or within ninety (90) days following the end of each fiscal year, as the case may be, an Officer's Certificate of Seller in form and substance reasonably satisfactory to Buyer that Seller during such fiscal period or year has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Agreement and the other Transaction Documents to be observed, performed or satisfied by it, and that there has been no Event of Default and no event or circumstance has occurred that is reasonably likely to result in a Material Adverse Effect; (vi) within fifteen (15) Business Days after Buyer's request, such further information with respect to the operation of any Mortgaged Property, Purchased Loan, the financial affairs of the Seller and any Plan and Multiemployer Plan as may be requested by Buyer, including all business plans prepared by or for Seller; provided, however, that with respect to information not previously known to, or in the possession of, Seller relating to any Multiemployer Plan, Seller shall only be required to provide such information as may be obtained through good faith efforts; 43 (vii) within sixty (60) Business Days after the end of each calendar year, such information as may be requested by Buyer, its successors and assigns, and transferees, in connection with the Portfolio Loans, and that are necessary for the party requesting such information in preparing its tax return and paying taxes in any country or jurisdiction where such tax return or taxes are due; and (viii) such other reports as Buyer shall reasonably require. (h) Seller shall at all times comply in all material respects with all laws, ordinances, rules and regulations of any federal, state, municipal or other public authority having jurisdiction over Seller or any of its assets and Seller shall do or cause to be done all things reasonably necessary to preserve and maintain in full force and effect its legal existence, and all licenses material to its business. (i) Seller shall at all times keep proper books of records and accounts in which full, true and correct entries shall be made of its transactions in accordance with GAAP and set aside on its books from its earnings for each fiscal year all such proper reserves in accordance with GAAP. (j) Seller shall observe, perform and satisfy all the terms, provisions, covenants and conditions required to be observed, performed or satisfied by it, and shall pay when due all costs, fees and expenses required to be paid by it, under the Transaction Documents. Seller shall pay and discharge all taxes, levies, liens and other charges, if any, on its assets and on the Purchased Loans that, in each case, in any manner would create any lien or charge upon the Purchased Loans, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided in accordance with GAAP. (k) Seller shall maintain its existence as corporation, organized solely and in good standing under the law of the State of Maryland and shall not dissolve, liquidate, merge with or into any other Person or otherwise change its organizational structure or identity or incorporate in any other jurisdiction unless Seller shall have notified Buyer in writing at least 30 days prior to any intent not to so maintain its existence and, in connection with a merger, (i) the surviving or resulting entity shall be a corporation or partnership organized under the laws of the United States or any state thereof; (ii) such entity shall expressly assume by written agreement, in form and substance satisfactory to Buyer in Buyer's sole discretion, the performance of all of Seller's duties and obligations hereunder and the Transaction Documents and (iii) such entity shall be at least as creditworthy as Seller, as determined by Buyer in Buyer's sole and absolute discretion; and provided, further, that after giving effect thereto, no Default or Event of Default would exist hereunder. (l) Seller shall maintain all records with respect to the Purchased Loans and the conduct and operation of its business with no less a degree of prudence than if the Purchased Loans were held by Seller for its own account and will furnish Buyer, upon request by Buyer or its designated representative, with information reasonably obtainable by Seller with respect to the Purchased Loans and the conduct and operation of its business. (m) Seller shall provide Buyer with notice of each modification of any Purchased Loan Documents consented to by Seller (including such modifications which do not constitute a Significant Modification). (n) Seller shall provide Buyer with notice of the occurrence of any "appraisal reduction event", "control appraisal period" or similar event under any participation agreement related to any Purchased Loan. 44 (o) Seller shall provide Buyer with reasonable access to operating statements, the occupancy status and other property level information, with respect to the Mortgaged Properties, plus any such additional reports as Buyer may reasonably request. (p) Seller may propose, and Buyer will consider but shall be under no obligation to approve, strategies for the foreclosure or other realization upon the security for any Purchased Loan that has become a Defaulted Loan. (q) Seller shall (or shall cause Servicer to) provide to Buyer on the fifteenth calendar day of each month, or if such day is not a Business Day then on the first Business Day immediately following such day, a computer readable file containing servicing information, including without limitation those fields specified by Buyer from time to time, on a loan-by-loan basis and in the aggregate, with respect to the Purchased Loans serviced hereunder by Seller or any Servicer. Seller shall not cause any Purchased Loan to be serviced by any servicer other than a servicer expressly approved in writing by Buyer. (r) Seller shall not engage in any transaction that would cause any obligation or action taken or to be taken hereunder (or the exercise by Buyer of any of its rights under the Agreement, the Purchased Loans or any Transaction Document) to be a non-exempt prohibited transaction under Section 406 of ERISA, Section 4975 of the Code or substantially similar provisions under any other federal, state or local laws, rules or regulations. 13. [INTENTIONALLY OMITTED.] 14. EVENTS OF DEFAULT; REMEDIES Paragraph 11 ("Events of Default") of the Agreement is hereby amended by the deletion of clauses (i), (ii) and (vi) in the first paragraph thereof, by the deletion in their entirety of Paragraphs 11(a) through (g) thereof and by the addition of the provisions (a) through (c) of this Section 14 set forth below; the words "Prime Rate" in Paragraph 11 (h) of the Agreement are hereby deleted and replaced with the words "Alternative Rate": (a) The following, together with clauses (iii) through (v) and clause (vii) of the first paragraph of Paragraph 11 of the Agreement, shall constitute an event of default hereunder (each an "Event of Default"): (i) failure of Seller to repurchase or the failure of Buyer to transfer the Purchased Loan on the applicable Repurchase Date (except when such failure to transfer is a result of Buyer's inability to obtain necessary consents to, or fulfill restrictions on, such transfer); (ii) failure of Seller to apply any Income received by Seller in accordance with the provisions hereof; (iii) (A) the Transaction Documents shall for any reason not cause, or shall cease to cause, Buyer to be the owner or, if recharacterized as a secured financing, a secured party with respect to any of the Purchased Loans or the collateral specified in Sections 6(c) and 6(d) free of any adverse claim, liens and other rights of others (other than as granted herein) or (B) if a Transaction is recharacterized as a secured financing, the Transaction Documents with respect to any Transaction shall for any reason cease to create a valid first priority security interest in favor of Buyer in any of the Purchased Loans or the collateral specified in Sections 6(c) and 6(d) or (C) if the Transaction Documents shall cease to be in full force and effect or if their enforceability is challenged by Seller; 45 (iv) failure of Seller to make the payments required under Section 5(b) on any Remittance Date which failure is not remedied within one (1) Business Day; (v) failure of Seller to make any other payment owing to Buyer which has become due, whether by acceleration or otherwise, under the terms of the Agreement which failure is not remedied within the applicable period (in the case of a failure pursuant to Section 4) or five Business Days after notice thereof to Seller; provided, however, that Buyer shall not be required to provide notice in the event of a failure by Seller to repurchase on the Repurchase Date; (vi) failure by Seller in the due performance or observance of any term, covenant or agreement contained in Section 11(j) or Section 12(p) of this Annex I; (vii) Change of Control shall have occurred with respect to the Seller; (viii) any representation made by Seller or Buyer (other than the representations and warranties set forth in Exhibit V hereto, which shall be considered, except as set forth below, solely for the purpose of determining the Market Value of the Purchased Loans) shall have been incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated (and, if susceptible to cure, the breach of such representation shall not have been cured within 10 Business Days of written notice of breach thereof); provided that the representations and warranties set forth in Section 10(a) (vi) or (viii) (in the case of (vi), with respect to the affected or Purchased Loans only) made by Seller shall not be considered an Event of Default if incorrect or untrue in any material respect, if Buyer terminates the related Transaction and Seller repurchases the related Purchased Loans on an Early Repurchase Date no later than ten (10) Business Days after receiving written notice of such incorrect or untrue representation (or if the breach of such representations and warranties is susceptible to cure, Seller effects a cure within such 10-Business Day period); provided, however, that if Seller shall have made any such representation (including the representations set forth in Exhibit V) with knowledge that it was materially incorrect or untrue at the time made, such misrepresentation shall constitute an Event of Default; (ix) a final judgment by any competent court in the United States of America for the payment of money in an amount greater than $5,000,000 shall have been rendered against Seller, and remained undischarged or unpaid for a period of thirty (30) days, during which period execution of such judgment is not effectively stayed; (x) Seller shall have defaulted or failed to perform under any note, indenture, loan agreement, guaranty, swap agreement or any other contract, agreement or transaction to which it is a party, which default (A) involves the failure to pay a matured obligation in excess of $10,000,000, or (B) involving an obligation of at least $10,000,000 is a monetary default or a material non-monetary default and results in acceleration or permits the acceleration of the obligation by any other party to or beneficiary of such note, indenture, loan agreement, guaranty, swap agreement or other contract agreement or transaction; provided, however, that any such default, failure to perform or breach shall not constitute an Event of Default if Seller cures such default, failure to perform or breach, as the case may be, within the grace period, if any, provided under the applicable agreement; or (xi) Seller fails to maintain a Fixed Charge Ratio of less than 1:2 and a Debt to Equity Ratio greater than 5:1 as of the end of any fiscal quarter; 46 (xii) if Seller or Buyer shall breach or fail to perform any of the terms, covenants, obligations or conditions of the Agreement, other than as specifically otherwise referred to in this definition of "Event of Default", and such breach or failure to perform is not remedied within ten (10) Business Days, or if such breach is not curable by the payment of a sum of money, thirty (30) days after notice thereof to Seller or Buyer from the applicable party or its successors or assigns. (b) If an Event of Default shall occur and be continuing with respect to Seller, the following rights and remedies shall be available to Buyer: (i) At the option of Buyer, exercised by written notice to Seller (which option shall be deemed to have been exercised, even if no notice is given, immediately upon the occurrence of an Act of Insolvency), the Repurchase Date for each Transaction hereunder shall, if it has not already occurred, be deemed immediately to occur (the date on which such option is exercised or deemed to have been exercised being referred to hereinafter as the "Accelerated Repurchase Date") (and any Transaction for which the related Purchase Date has not yet occurred shall be canceled). (ii) If Buyer exercises or is deemed to have exercised the option referred to in Section 14(b)(i): (A) Seller's obligations hereunder to repurchase all Purchased Loans shall become immediately due and payable on and as of the Accelerated Repurchase Date and all Income deposited in the Blocked Account shall be retained by Buyer and applied to the aggregate unpaid Repurchase Price and any other amounts owing by Seller hereunder; and (B) to the extent permitted by applicable law, the Repurchase Price with respect to each Transaction (determined as of the Accelerated Repurchase Date) shall be increased by the aggregate amount obtained by daily application of, on a 360 day per year basis for the actual number of days during the period from and including the Accelerated Repurchase Date to but excluding the date of payment of the Repurchase Price (as so increased), (x) the Pricing Rate applicable upon an Event of Default for such Transaction multiplied by (y) the Repurchase Price for such Transaction (decreased by (I) any amounts actually remitted to Buyer by Seller from time to time pursuant to Section 5 and applied to such Repurchase Price to the extent such amounts are not already included in the computation of the Repurchase Price and (II) any amounts applied to the Repurchase Price pursuant Section 14(b)(iii) of this Annex I); and (C) the Custodian shall, upon the request of Buyer (with simultaneous copy of such request to Seller), deliver to Buyer all instruments, certificates and other documents then held by the Custodian relating to the Purchased Loans. (iii) Buyer may, after ten (10) days notice to Seller of Buyer's intent to take such action (which notice may be the notice given under subsection (b)(i) of this Section 14), (A) immediately sell, at a public or private sale in a commercially reasonable manner and at such price or prices as Buyer may reasonably deem satisfactory any or all of the Purchased Loans or (B) in its sole discretion elect, in lieu of selling all or a portion of such Purchased Loans, to give 47 Seller credit for such Purchased Loans in an amount equal to the Market Value of such Purchased Loans against the aggregate unpaid Repurchase Price for such Purchased Loans and any other amounts owing by Seller under the Transaction Documents. The proceeds of any disposition of Purchased Loans effected pursuant to this Section 14(b)(iii) shall be applied, (v) first, to the costs and expenses incurred by Buyer in connection with Seller's default; (w) second, to costs of cover and/or Hedging Transactions, if any; (x) third, to the Repurchase Price; (y) fourth, to any other outstanding obligation of Seller to Buyer or its Affiliates pursuant to the Transaction Documents, and (z) the balance, if any, to Seller. (iv) The parties recognize that it may not be possible to purchase or sell all of the Purchased Loans on a particular Business Day, or in a transaction with the same purchaser, or in the same manner because the market for such Purchased Loans may not be liquid. In view of the nature of the Purchased Loans, the parties agree that, to the extent permitted by applicable law, liquidation of a Transaction or the Purchased Loans shall not require a public purchase or sale and that a good faith private purchase or sale shall be deemed to have been made in a commercially reasonable manner. Accordingly, Buyer may elect, in its sole discretion, the time and manner of liquidating any Purchased Loans, and nothing contained herein shall (A) obligate Buyer to liquidate any Purchased Loans on the occurrence and during the continuance of an Event of Default or to liquidate all of the Purchased Loans in the same manner or on the same Business Day or (B) constitute a waiver of any right or remedy of Buyer. (v) Seller shall be liable to Buyer for the amount of all reasonable expenses, including reasonable legal fees and expenses, actually incurred by Buyer in connection with or as a consequence of an Event of Default with respect to Seller, (B) all costs incurred in connection with covering transactions or Hedging Transactions (including short sales) or entering into replacement transactions (C) all damages, losses, judgment costs and expenses of any kind which may be imposed on, incurred by or asserted against Buyer relating to or arising out of such Hedging Transactions or covering transactions and (D) any other loss, damage, cost or expense directly arising or resulting from the occurrence of an Event of Default with respect to Seller. (vi) Buyer may exercise any or all of the remedies available to Buyer immediately upon the occurrence of an Event of Default and at any time during the continuance thereof. All rights and remedies arising under the Transaction Documents, as amended from time to time, are cumulative and not exclusive of any other rights or remedies which Buyer may have. (vii) Buyer may enforce its rights and remedies hereunder without prior judicial process or hearing, and Seller hereby expressly waives any defenses Seller might otherwise have to require Buyer to enforce its rights by judicial process. Seller also waives any defense Seller might otherwise have arising from the use of nonjudicial process, disposition of any or all of the Purchased Loans, or from any other election of remedies. Seller recognizes that nonjudicial remedies are consistent with the usages of the trade, are responsive to commercial necessity and are the result of a bargain at arm's length. (viii) Without limiting any other rights or remedies of Buyer, Buyer shall have the right to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by or for account of Buyer or Buyer's Affiliates on behalf of Seller to any obligations of Seller hereunder to Buyer to the credit or for the account of Seller against any and all of such obligations, irrespective of whether Buyer shall have made any demand under the Agreement or the other Transaction Documents. 48 Notwithstanding anything to the contrary in the Agreement, Buyer shall not be required, prior to exercising any remedy in respect of any Event of Default by Seller, to give notice otherwise required hereunder, if Buyer reasonably believes that (A) the Purchased Loans then held by Buyer threaten to decline speedily in value or are of a type customarily sold in a recognized market or (B) any delay occasioned by the giving of such notice will jeopardize Buyer's ability to recover, by sale or otherwise, all or part of the then-outstanding amount of the Repurchase Price or of any other amounts owed to Buyer in connection therewith. (c) If an Event of Default occurs and is continuing with respect to Buyer, the following rights and remedies shall be available to Seller: (i) Upon tender by Seller of payment of the aggregate Repurchase Price for all Purchased Loans, together with all other amounts due hereunder to Buyer, Buyer's right, title and interest in such Purchased Loans shall be deemed transferred to Seller, and Buyer shall simultaneously deliver such Purchased Loans to Seller. (ii) Seller shall have all the rights and remedies provided herein or provided by applicable federal, state, foreign, local and any other applicable laws, in equity, and under any other agreement between Buyer and Seller (including the right to offset any debt or claim). 15. SINGLE AGREEMENT Clause (ii) of Paragraph 12 of the Agreement ("Single Agreement") is hereby deleted. 16. NOTICES AND OTHER COMMUNICATIONS Paragraph 13 of the Agreement ("Notices and Other Communications") is hereby deleted and replaced in its entirety by the following provisions of this Section 16: All notices, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) hand delivery, with proof of attempted delivery, (b) certified or registered United States mail, postage prepaid, (c) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) by telecopier (with answerback acknowledged); provided that such telecopied notice must also be delivered by one of the means set forth in (a), (b) or (c) above, to the addresses specified in Annex II hereto or at such other address and person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section 16. A notice shall be deemed to have been given: (a) in the case of hand delivery, at the time of delivery, (b) in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day, (c) in the case of expedited prepaid delivery upon the first attempted delivery on a Business Day; or (d) in the case telecopier, upon receipt of answerback confirmation, provided that such telecopied notice was also delivered as required in this Section. A party receiving a notice which does not comply with the technical requirements for notice under this Section may elect to waive any deficiencies and treat the notice as having been properly given. 17. NON-ASSIGNABILITY The provisions of Paragraph 15 of the Agreement ("Nonassignability; Termination") are hereby deleted and replaced in their respective entireties by the following provisions of this Section 17: 49 (a) The rights and obligations of Seller under the Transaction Documents, the Hedging Transactions and under any Transaction shall not be assigned by Seller without the prior written consent of Buyer. Buyer may assign or participate (other than pursuant to a Financing Transaction) its rights and obligations under the Transaction Documents and under any Transaction without the prior written consent of Seller only to a Permitted Transferee. Buyer may assign its rights and interests in any Hedging Transaction without the prior written consent of Seller. Notwithstanding anything to the contrary contained herein, with respect to Seller, (A) Buyer shall remain responsible for reviewing and determining the eligibility of any New Loan for purposes of any Transaction and (B) Seller shall continue to deal solely and directly with Buyer in connection with any Transaction. As long as an Event of Default on the part of Seller shall have occurred and be continuing, Buyer may assign or participate its rights and obligations under the Transaction Documents and/or any Transaction (including in connection with any Financing Transaction) to any Person. (b) The Buyer shall maintain a record of ownership identifying all assignees. If any assignee is a non-U.S. Person, such assignee shall timely provide Seller with such forms as may be required to establish the assignee's status for U.S. withholding tax purposes. (c) With respect to any issuance by Buyer of a participation in any Transaction, (i) Buyer shall act as exclusive agent for all participants in any dealings with Seller in connection with such Transactions and will maintain, on behalf of Seller, a record of ownership that identifies all participants, and (ii) Seller shall not be obligated to deal directly with any party other than Buyer in connection with such Transactions, or to pay or reimburse Buyer for any costs that would not have been incurred by Buyer had no participation interests in such Transactions been issued. (d) Subject to the foregoing, the Transaction Documents and any Transactions shall be binding upon and shall inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in the Transaction Documents, express or implied, shall give to any Person, other than the parties to the Transaction Documents and their respective successors, any benefit or any legal or equitable right, power, remedy or claim under the Transaction Documents. 18. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL The language in Paragraph 16 of the Agreement ("Governing Law") which reads "without giving effect to the conflict of law principals thereof" is hereby deleted. Paragraph 18 of the Agreement ("Use of Employee Plan Assets") is hereby deleted in its entirety. Paragraph 17 ("No Waivers, Etc.") is hereby deleted and replaced in its entirety by the following provisions of this Section 18: (a) Each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of any United States Federal or New York State court sitting in Manhattan, and any appellate court from any such court, solely for the purpose of any suit, action or proceeding brought to enforce its obligations under the Agreement or relating in any way to the Agreement or any Transaction under the Agreement. (b) To the extent that either party has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, from jurisdiction of any court or from set off or any legal process (whether service or notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) with respect to itself or any of its property, such party hereby irrevocably waives and agrees not to plead or claim such immunity in respect of any action 50 brought to enforce its obligations under the Agreement or relating in any way to the Agreement or any Transaction under the Agreement. (c) Each party hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court and any right of jurisdiction on account of its place of residence or domicile and irrevocably consents to the service of any summons and complaint and any other process by the mailing of copies of such process to them at their respective address specified herein. Each party hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 18 shall affect the right of Buyer to serve legal process in any other manner permitted by law or affect the right of Buyer to bring any action or proceeding against Seller or its property in the courts of other jurisdictions. (d) EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR THEREUNDER. 19. NO RELIANCE; DISCLAIMERS (a) Each of Buyer and Seller hereby acknowledges, represents and warrants to the other that, in connection with the negotiation of, the entering into, and the performance under, the Transaction Documents and each Transaction thereunder: (i) It is not relying (for purposes of making any investment decision or otherwise) upon any advice, counsel or representations (whether written or oral) of the other party to the Transaction Documents, other than the representations expressly set forth in the Transaction Documents; (ii) It has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent that it has deemed necessary, and it has made its own investment, hedging and trading decisions (including decisions regarding the suitability of any Transaction) based upon its own judgment and upon any advice from such advisors as it has deemed necessary and not upon any view expressed by the other party; (iii) It is a sophisticated and informed Person that has a full understanding of all the terms, conditions and risks (economic and otherwise) of the Transaction Documents and each Transaction thereunder and is capable of assuming and willing to assume (financially and otherwise) those risks; (iv) It is entering into the Transaction Documents and each Transaction thereunder for the purposes of managing its borrowings or investments or hedging its underlying assets or liabilities and not for purposes of speculation; (v) It is not acting as a fiduciary or financial, investment or commodity trading advisor for the other party and has not given the other party (directly or indirectly through any other Person) any assurance, guaranty or representation whatsoever as to the merits (either legal, regulatory, tax, business, investment, financial accounting or otherwise) of the Transaction Documents or any Transaction thereunder; 51 (b) Each determination by Buyer of the Market Value with respect to each New Loan or Purchased Loan or the communication to Seller of any information pertaining to Market Value under the Agreement shall be subject to the following disclaimers: (i) Buyer has assumed and relied upon, with Seller's consent and without independent verification, the accuracy and completeness of the information provided by Seller and reviewed by Buyer. Buyer has not made any independent inquiry of any aspect of the New Loans or Purchased Loans or the underlying collateral. Buyer's view is based on economic, market and other conditions as in effect on, and the information made available to Buyer as of, the date of any such determination or communication of information, and such view may change at any time without prior notice to Seller. (ii) Market Value determinations and other information provided to Seller constitute a statement of Buyer's view of the value of one or more loans or other assets at a particular point in time and neither (x) constitute a bid for a particular trade, (y) indicate a willingness on the part of Buyer or any Affiliate thereof to make such a bid, nor (z) reflect a valuation for substantially similar assets at the same or another point in time, or for the same assets at another point in time. (iii) Market Value determinations and other information provided to Seller may vary significantly from valuation determinations and other information which may be obtained from other sources. (iv) Market Value determinations and other information provided to Seller are communicated to Seller solely for its use and may not be relied upon by any other person and may not be disclosed or referred to publicly or to any third party without the prior written consent of Buyer, which consent Buyer may withhold or delay in its sole and absolute discretion. (v) Buyer makes no representations or warranties with respect to any Market Value determinations or other information provided to Seller. Buyer shall not be liable for any incidental or consequential damages arising out of any inaccuracy in such valuation determinations and other information provided to Seller, including as a result of any act of gross negligence or breach of any warranty. (vi) Market Value indications and other information provided to Seller in connection with Section 3(b) are only indicative of the initial Market Value of the New Loan submitted to Buyer for consideration thereunder, and may change without notice to Seller prior to, or subsequent to, the transfer by Seller of the New Loan pursuant to Section 3(e). No indication is provided as to Buyer's expectation of the future value of such Purchased Loan or the underlying collateral. (vii) Initial Market Value indications and other information provided to Seller in connection with Section 3(b) are to be used by Seller for the sole purpose of determining whether to proceed in accordance with Section 3 and for no other purpose. 20. INDEMNITY AND EXPENSES (a) Seller hereby agrees to hold Buyer and its Affiliates and each of their respective officers, directors, employees and agents ("Indemnified Parties") harmless from and indemnify the Indemnified Parties against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, taxes (including stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Purchased Loans or in connection with any of the transactions contemplated by 52 the Agreement (or the recharacterization of any Transaction) and the documents delivered in connection herewith and therewith, other than net income taxes of Buyer), fees, costs, expenses (including reasonable attorneys fees and disbursements and any and all servicing and enforcement costs with respect to the Purchased Loans) or disbursements (all of the foregoing, collectively "Indemnified Amounts") which may at any time (including, without limitation, such time as the Agreement shall no longer be in effect and the Transactions shall have been repaid in full) be imposed on or asserted against any Indemnified Party in any way whatsoever arising out of or in connection with, or relating to, the Agreement or any Transactions thereunder or any action taken or omitted to be taken by any Indemnified Party under or in connection with any of the foregoing; provided, that Seller shall not be liable for Indemnified Amounts resulting from the gross negligence or willful misconduct of any Indemnified Party. Without limiting the generality of the foregoing, Seller agrees to hold Buyer harmless from and indemnify Buyer against all Indemnified Amounts with respect to all Purchased Loans relating to or arising out of any violation or alleged violation of any environmental law, rule or regulation or any consumer credit laws, including without limitation ERISA, that, in each case, results from anything other than Buyer's gross negligence or willful misconduct. In any suit, proceeding or action brought by Buyer in connection with any Purchased Loan for any sum owing thereunder, or to enforce any provisions of any Purchased Loan Documents, Seller will save, indemnify and hold Buyer harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by Seller of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from Seller. Seller also agrees to reimburse an Indemnified Party as and when billed by such Indemnified Party for all such Indemnified Party's costs and expenses incurred in connection with the enforcement or the preservation of such Indemnified Party's rights under the Agreement and any other Transaction Document or any transaction contemplated hereby or thereby, including without limitation the reasonable fees and disbursements of its counsel. Seller hereby acknowledges its obligations hereunder are recourse obligations of Seller. (b) Seller agrees to pay as and when billed by Buyer all of the out-of-pocket costs and expenses incurred by Buyer in connection with the development, preparation and execution of, and any amendment, supplement or modification to, the Agreement and the other Transaction Documents or any other documents prepared in connection herewith or therewith. Seller agrees to pay as and when billed by Buyer all of the out-of-pocket costs and expenses incurred in connection with the consummation and administration of the transactions contemplated hereby and thereby including without limitation (i) all the reasonable fees, disbursements and expenses of counsel to Buyer and (ii) all the Due Diligence Fees, testing and review costs and expenses incurred by Buyer in connection with the evaluation of any New Loan and with respect to any Transaction. 21. DUE DILIGENCE Seller acknowledges that Buyer has the right to perform continuing due diligence reviews with respect to the Purchased Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or determining or re-determining the Asset Base for purposes of Section 4(a) of this Annex I, or otherwise, and Seller agrees that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence review on any or all of the Purchased Loans, including, without limitation, ordering new credit reports and Appraisals on the applicable collateral and otherwise regenerating the information used to originate such Purchased Loans. Upon reasonable (but no less than one (1) Business Day) prior notice to Seller, Buyer or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Purchased Loan Files and any and all documents, records, agreements, instruments or information relating to any Purchased Loan in the possession or under the control of Seller, any servicer or sub-servicer and/or Custodian. Seller also shall make available to Buyer a knowledgeable financial or accounting officer for 53 the purpose of answering questions respecting the Purchased Loan Files and the Purchased Loans. Seller agrees to cooperate with Buyer and any third party underwriter designated by Buyer in connection with such underwriting, including, but not limited to, providing Buyer and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Purchased Loans in the possession, or under the control, of such Seller. 22. SERVICING (a) Notwithstanding the purchase and sale of the Purchased Loans by Seller to Buyer hereunder, Midland Loan Services, Inc. or, with the consent of Buyer (which consent shall not unreasonably be withheld), an Affiliate of Seller ("Servicer") shall continue to service the Purchased Loans at Seller's sole cost and for the benefit of Buyer and, if Buyer shall exercise its rights to pledge or hypothecate the Purchased Loans prior to the Repurchase Date pursuant to Section 8 or 17 of this Annex I, Buyer's assigns; provided, however, that the obligations of Seller to service any of the Purchased Loans shall cease automatically upon the earliest of (i) an Event of Default, (ii) the date on which the aggregate Repurchase Price for the Portfolio Loans together with all accrued and unpaid Price Differential, unpaid Costs and other amounts payable by Seller to Buyer hereunder have been paid in full or (iii) the transfer of servicing approved by Seller and Buyer, which Buyer's consent shall not be unreasonably withheld. Seller shall service and shall cause the Servicer to service the Purchased Loans in accordance with Accepted Servicing Practices. (b) Seller agrees that Buyer is the owner of all servicing records, including but not limited to any and all servicing agreements (the "Servicing Agreements"), files, documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of Purchased Loans (the "Servicing Records") so long as the Purchased Loans are subject to the Agreement. Seller covenants to safeguard such Servicing Records and to deliver them promptly to Buyer or its designee (including the Custodian) at Buyer's request. (c) Upon the occurrence and continuance of an Event of Default, Buyer may, in its sole discretion, (i) sell its right to the Purchased Loans on a servicing released basis or (ii) terminate Servicer or any sub-servicer of the Purchased Loans with or without cause, in each case without payment of any termination fee or such other costs or expenses to Buyer, it being agreed that Seller will pay any and all fees, costs and expenses required to terminate the Servicing Agreement and to effectuate a transfer of servicing to a designee of the Buyer; provided, however, that Buyer shall cause any successor servicer to deliver to Seller reports generated for Buyer relating to the Purchased Loans. (d) Seller shall not, and shall not permit Servicer to, employ sub-servicers to service the Purchased Loans without the prior written approval of Buyer which shall not be unreasonably withheld. If the Purchased Loans are serviced by a sub-servicer, Seller shall irrevocably assign all rights, title and interest in the Servicing Agreements with such sub-servicer to Buyer. (e) Seller shall cause Servicer and any sub-servicers engaged by Seller to execute a letter agreement with Buyer acknowledging Buyer's security interest in the Purchased Loans and the Servicing Agreements and agreeing that each such sub-servicer shall deposit all Income with respect to the Purchased Loans in the Blocked Account, all in such manner as shall be reasonably acceptable to Buyer. (f) In the event Seller or its Affiliate is servicing any Purchased Loan, Seller shall permit Buyer to inspect Seller's or its Affiliate's servicing facilities, as the case may be, for the purpose of satisfying Buyer that Seller or its Affiliate, as the case may be, has the ability to service such Purchased Loans as provided in the Agreement. 54 (g) Seller shall cause the Servicer to provide a copy of each report and notice sent to Seller to be sent to Buyer concurrently therewith. 23. TREATMENT FOR TAX PURPOSES It is the intention of the parties that, for U.S. Federal, state and local income and franchise tax purposes, the Transactions constitute a financing, and that the Seller is, and, so long as no Event of Default shall have occurred and be continuing, will continue to be, treated as the owner of the Purchased Loans for such purposes. Unless prohibited by applicable law, Seller and Buyer agree to treat the Transactions as described in the preceding sentence on any and all filings with any U.S. Federal, state or local taxing authority. 24. INTENT The provisions of Paragraph 19 of the Agreement ("Intent") are hereby deleted and replaced in their respective entireties by the following provisions of this Section 24: The parties recognize that each Transaction is a "repurchase agreement" as that term is defined in Section 101 of Title 11 of the United States Code, as amended (except in so far as the type of asset subject to the Transaction or the term of that Transaction would render such definition inapplicable). The parties recognize that each Transaction is a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended. 25. INTENTIONALLY OMITTED 26. MISCELLANEOUS The provisions of Paragraph 20 of the Agreement ("Disclosure Relating to Certain Federal Protections") are hereby deleted in their entirety and replaced by the following provisions of this Section 26: (a) Time is of the essence under the Transaction Documents and all Transactions thereunder and all references to a time shall mean New York time in effect on the date of the action unless otherwise expressly stated in the Transaction Documents. (b) All rights, remedies and powers of Buyer hereunder and in connection herewith are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all other rights, remedies and powers of Buyer whether under law, equity or agreement. In addition to the rights and remedies granted to it in the Agreement to the extent applicable, Buyer shall have all rights and remedies of a secured party under the UCC and any other applicable law. (c) The Transaction Documents may be executed in counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. (d) The headings in the Transaction Documents are for convenience of reference only and shall not affect the interpretation or construction of the Transaction Documents. (e) Each provision of the Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Agreement shall be prohibited by or be invalid 55 under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of the Agreement. (f) This Annex I, together with the Agreement contain a final and complete integration of all prior expressions by the parties with respect to the subject matter hereof and thereof and shall constitute the entire agreement among the parties with respect to such subject matter, superseding all prior oral or written understandings. (g) The parties understand that the Agreement is a legally binding agreement that may affect such party's rights. Each party represents to the other that it has received legal advice from counsel of its choice regarding the meaning and legal significance of the Agreement and that it is satisfied with its legal counsel and the advice received from it. (h) Should any provision of the Agreement require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any Person by reason of the rule of construction that a document is to be construed more strictly against the Person who itself or through its agent prepared the same, it being agreed that all parties have participated in the preparation of the Agreement. (i) Buyer agrees not to seek before any court or governmental agency to have any director or officer of the Seller held personally liable for any action or inactions of the Seller or any obligations of the Seller under the Agreement or the related Transaction Documents, except if such actions or inactions are the result of the gross negligence, fraud or willful misconduct of such director or officer. [SIGNATURES COMMENCE ON NEXT PAGE] 56 IN WITNESS WHEREOF, the parties have executed this Annex I as of the 28th day of May 2003. BUYER: ------ GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership By: Goldman Sachs Real Estate Funding Corp., its general partner By: /s/ Daniel Sparks ------------------------------- Name: Daniel Sparks Title: Vice President SELLER: ------- CAPITAL TRUST, INC., a Maryland corporation By: /s/ Brian H. Oswald ------------------------------------- Name: Brian H. Oswald Title: Chief Financial Officer 1 SCHEDULE 1 Purchase Percentages and Applicable Spreads ------------------------------------------- LTV greater than 70% and less than or equal to 85% (or 90% with respect to loans secured by multifamily properties) Applicable Purchase Spread Loan Type Percentage* (basis points)* - --------- - -------------------------------------------------------------------------------- Mezzanine Loans 70% 225 - -------------------------------------------------------------------------------- Second Mortgage Loans 70% 225 - -------------------------------------------------------------------------------- First Mortgages--B Notes 70% 225 - -------------------------------------------------------------------------------- Other Mezzanine Investments 70%* 225* LTV less than or equal to 70% Applicable Purchase Spread Loan Type Percentage* (basis points)* - --------- - -------------------------------------------------------------------------------- Mezzanine Loans 80% 185 - -------------------------------------------------------------------------------- Second Mortgage Loans 80% 185 - -------------------------------------------------------------------------------- First Mortgages--B Notes 80% 185 - -------------------------------------------------------------------------------- Other Mezzanine Investments 80%* 185* - --------- * Or as otherwise determined by Buyer in its sole discretion on a case-by-case basis and set forth in a Confirmation. Schedule 1-1 SCHEDULE 2 Initial Portfolio Loans ----------------------- 1. B Participation Interest dated May 16, 2003 (in the amount of $13,000,000) in that certain Mortgage Loan originated by Wachovia Bank National Association on March 26, 2003 and made to Matana, LLC and secured by that certain property located at 50 West 23rd Street, New York, New York. Schedule 2-1 SCHEDULE 3 Purchased Loan Information -------------------------- (a) Loan Number/Loan Type (b) Obligor Name (c) Property Address (d) Original Balance (e) Original Coupon (f) Outstanding Balance (g) Maturity Date (h) Table Funding (Yes/No) (i) If Participation, the name of the lead lender under the Purchased Loan (j) Such information as Buyer and Custodian shall agree and that the Buyer shall set forth in writing, on a case-by-case basis. Schedule 3-1 SCHEDULE 4 APPROVED APPRAISERS ------------------- 1. KTR Appraisal Services 2. Cushman & Wakefield, Inc. 3. Grubb & Ellis 4. CB Richard Ellis 5. The Weitzman Group 6. Greenwich Group 7. Joseph Blake 8. HVS International 9. PWC Schedule 4-1 SCHEDULE 5 APPROVED ENGINEERS ------------------ 1. KTR Realty Services 2. Merritt & Harris, Inc. 3. C.A. Rich, Inc. 4. IVI 5. Dames & Moore 6. Law Environmental 7. Eckland 8. EM&CA 9. Aqua Terra 10. ATC (BCM Engineers) 11. Horn Chandler & Thomas 12. National Assessment Corporation 13. EMG 14. Property Solutions Inc. 15. Aaron & Wright 16. PSI Schedule 5-1 SCHEDULE 6 APPROVED ENVIRONMENTAL CONSULTANTS ---------------------------------- 1. Acqua Terra 2. Law Environmental 3. KTR Realty Services 4. EMG 5. Clayton 6. Dames & Moore 7. Brown & Root 8. C.A. Rich, Inc. 9. Eckland 10. EM&CA 11. ATC (BCM Engineers) 12. IVI 13. Aaron & Wright 14. Certified Environmental Inc. 15. Environ Business, Inc. 16. Property Solutions, Inc. 17. National Assessment Corporation 18. Hillman Environmental Group 19. Front Royal 20. PSI Schedule 6-1 SCHEDULE 7-A Form of UCC Financing Statement ------------------------------- Debtor: Secured Party: - ------- -------------- Capital Trust, Inc. Goldman Sachs Mortgage Company 410 Park Avenue, 14th Floor 85 Broad Street New York, New York 1002 New York, New York 10004 ATTACHMENT A TO UCC FINANCING STATEMENT This filing is for protective purposes only with respect to the Purchased Loans and the Blocked Account in case the sale of any Purchased Loan under the Repurchase Agreement is re-characterized as a grant of a security interest in any such Purchased Loan. The collateral covered by this financing statement is all of the Debtor's right, title and interest in, to and under the following property, whether now owned or existing, hereafter acquired or arising, or in which the Debtor now or hereafter has any rights, and wheresoever located (the "Collateral"): (a) the Blocked Account, all of the Purchased Loans including those identified in Schedule I hereto, all Income from such Purchased Loans and all proceeds of all of the foregoing, and (b) all Hedging Transactions relating to Purchased Loans entered into by Seller and all proceeds thereof. The following terms shall have the following meanings. Such definition shall be equally applicable to the singular and plural forms of the terms defined. "Blocked Account" means that certain Account No. _____ established and maintained by Debtor at PNC Bank pursuant to Section 5(a) of the Repurchase Agreement (and any successor thereto or replacement thereof established and maintained pursuant to Section 5(a) of the Repurchase Agreement and a Blocked Account Agreement). "Blocked Account Agreement" means the Blocked Account Agreement, dated as of the date hereof and executed by Buyer, Seller and the Depository Bank (and any successor thereot or replacement thereof extended by Buyer, Seller and the Depository Bank). "Buyer" means Secured Party. "Custodian" means Deutsche Bank Trust Company Americas or any successor Custodian appointed by Buyer. "Depository Bank" shall mean PNC Bank, N.A. or any successor Depository Bank appointed by Seller with the prior written consent of Buyer (which consent shall not be unreasonably withheld, delayed or conditioned) which delivers a deposit account agreement in the form of the Blocked Account Agreement or another form reasonably acceptable to Buyer. "Eligible Loans" means any of the following types of loans listed in (i) through (v) below: Schedule 7-A-1 (i) performing mezzanine loans which are secured by pledges of the equity ownership interests in entities that directly or indirectly own Eligible Properties; (ii) performing mortgage loans secured by second liens on Eligible Properties; (iii) junior participation interests (or a junior promissory note that is, in effect, similar in nature to a junior participation interest) in performing mortgage loans secured by first liens on Eligible Properties that also secure a senior promissory note (or senior interest) evidencing such loan; and (iv) any other performing loan, participation interest, preferred equity investment or other junior mezzanine or subordinate investment which does not conform to the criteria set forth in clauses (i) and (iii) above that Buyer elects in its sole discretion to purchase. "Eligible Property" shall mean a property that is a multifamily, retail, office, industrial, warehouse, condominium or hospitality property or such other property type acceptable to Buyer in the exercise of its good faith business judgment; provided, however, that Buyer shall determine in its sole and absolute discretion, on a case-by-case basis, whether any healthcare related property, such as assisted living, nursing homes, acute care, rehabilitation centers, diagnostic centers and psychiatric centers, qualifies as an Eligible Property. "Hedging Transactions" means, with respect to any or all of the Purchased Loans, any short sale of U.S. Treasury Securities or mortgage-related securities, futures contract (including Eurodollar futures) or options contract or any interest rate swap, cap or collar agreement or similar arrangements providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Seller or the underlying obligor with respect to any Purchased Loan and pledged to Seller as collateral for such Purchased Loan, with one or more counterparties whose unsecured debt is rated at least AA (or its equivalent) by any Rating Agency or, with respect to any Hedging Transaction pledged to Seller as additional collateral for a Purchased Loan, such other rating requirement applicable to such Hedging Transaction set forth in the related Purchased Loan Documents or which is otherwise reasonably acceptable to Buyer; provided that Seller shall not grant or permit any liens, security interests, charges, or encumbrances with respect to any such hedging arrangements for the benefit of any Person other than Buyer. "Income" means, with respect to any Purchased Loan at any time, any payment or other cash distribution thereon of principal, interest, dividends, fees, reimbursements or proceeds or other cash distributions thereon (including casualty or condemnation proceeds). "Person" means an individual, corporation, limited liability company, business trust, partnership, joint tenant or tenant-in-common, trust, unincorporated organization, or other entity, or a federal, state or local government or any agency or political subdivision thereof. "Purchased Loan Documents" shall mean, with respect to a Purchased Loan, the documents comprising the Purchased Loan File for such Purchased Loan. "Purchased Loan File" shall mean the documents specified as the "Purchased Loan File" in Section 7(b) of the Repurchase Agreement, together with any additional documents and Schedule 7-A-2 information required to be delivered to Buyer or its designee (including the Custodian) pursuant to the Repurchase Agreement. "Purchased Loans" means all Eligible Loans sold by Seller to Buyer and any additional cash and/or other assets delivered by Seller to Buyer pursuant to Section 4(a) of the Repurchase Agreement, including, without limitation, all Purchased Loans, the Purchased Loan File of which is held by the Custodian. Additional information with respect to the Purchased Loans may be obtained from the Secured Party. "Rating Agency" means any of Fitch Inc., Moody's Investor Service, Inc. and Standard & Poor's Rating Services, Inc., a division of McGraw Hill Companies Inc. "Repurchase Agreement" means that certain Master Repurchase Agreement dated as of May 28, 2003, between Goldman Sachs Mortgage Company and Capital Trust, Inc., (together with Annex I and such other annexes and schedules attached thereto) as the same may be amended, restated or otherwise modified from time to time. "Seller" means Debtor. SCHEDULE 1 1. [B] Participation Interest, dated _____ issued to __________. in the amount of $__________, in that certain Mortgage Loan [(in the original principal amount of $__________)], dated as of _______, made by ___________. to _________ under and pursuant to that certain Loan Agreement dated as of ________ between _________ and _________ and secured by that certain property located in _________, [as such B Participation Interest was assigned by _________ to CTMP III GS Finance Sub, LLC pursuant to that certain Assignment and Assumption Agreement (Participation B) dated as of _________]. 2. [$__________ [Senior/Junior] Mezzanine Loan, dated as of _________ made by _________ to _________, under and pursuant to that certain [Loan Agreement] dated as of _________ between _________ and _________, [as assigned (together with such loan agreement and all of the other loan documents evidencing and securing such senior mezzanine loan) by _________ to CTMP III GS Finance Sub, LLC pursuant to that certain Omnibus Assignment dated as of ---------]. Schedule 7-A-3 SCHEDULE 7-B Form of UCC Financing Statement ------------------------------- Debtor: Secured Party: - ------- -------------- Capital Trust, Inc. Goldman Sachs Mortgage Company 410 Park Avenue, 14th Floor 85 Broad Street New York, New York 1002 New York, New York 10004 ATTACHMENT A TO UCC FINANCING STATEMENT AMENDMENT This filing is for protective purposes only with respect to the Purchased Loans and the Blocked Account in case the sale of any Purchased Loan under the Repurchase Agreement is re-characterized as a grant of a security interest in any such Purchased Loan. The collateral covered by this financing statement is all of the Debtor's right, title and interest in, to and under the following property, whether now owned or existing, hereafter acquired or arising, or in which the Debtor now or hereafter has any rights, and wheresoever located (the "Collateral"): (a) the Blocked Account, all of the Purchased Loans including those identified in Schedule I hereto, all Income from such Purchased Loans and all proceeds of all of the foregoing, and (b) all Hedging Transactions relating to Purchased Loans entered into by Seller and all proceeds thereof. The following terms shall have the following meanings. Such definition shall be equally applicable to the singular and plural forms of the terms defined. "Blocked Account" means that certain Account No. _____ established and maintained by Debtor at PNC Bank pursuant to Section 5(a) of the Repurchase Agreement (and any successor thereto or replacement thereof established and maintained pursuant to Section 5(a) of the Repurchase Agreement and a Blocked Account Agreement). "Blocked Account Agreement" means the Blocked Account Agreement, dated as of the date hereof and executed by Buyer, Seller and the Depository Bank (and any successor thereot or replacement thereof extended by Buyer, Seller and the Depository Bank). "Buyer" means Secured Party. "Custodian" means Deutsche Bank Trust Company Americas or any successor Custodian appointed by Buyer. "Depository Bank" shall mean PNC Bank, N.A. or any successor Depository Bank appointed by Seller with the prior written consent of Buyer (which consent shall not be unreasonably withheld, delayed or conditioned) which delivers a deposit account agreement in the form of the Blocked Account Agreement or another form reasonably acceptable to Buyer. "Eligible Loans" means any of the following types of loans listed in (i) through (v) below: Schedule 7-B-1 (v) performing mezzanine loans which are secured by pledges of the equity ownership interests in entities that directly or indirectly own Eligible Properties; (vi) performing mortgage loans secured by second liens on Eligible Properties; (vii) junior participation interests (or a junior promissory note that is, in effect, similar in nature to a junior participation interest) in performing mortgage loans secured by first liens on Eligible Properties that also secure a senior promissory note (or senior interest) evidencing such loan; and (viii) any other performing loan, participation interest, preferred equity investment or other junior mezzanine or subordinate investment which does not conform to the criteria set forth in clauses (i) and (iii) above that Buyer elects in its sole discretion to purchase. "Eligible Property" shall mean a property that is a multifamily, retail, office, industrial, warehouse, condominium or hospitality property or such other property type acceptable to Buyer in the exercise of its good faith business judgment; provided, however, that Buyer shall determine in its sole and absolute discretion, on a case-by-case basis, whether any healthcare related property, such as assisted living, nursing homes, acute care, rehabilitation centers, diagnostic centers and psychiatric centers, qualifies as an Eligible Property. "Hedging Transactions" means, with respect to any or all of the Purchased Loans, any short sale of U.S. Treasury Securities or mortgage-related securities, futures contract (including Eurodollar futures) or options contract or any interest rate swap, cap or collar agreement or similar arrangements providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Seller or the underlying obligor with respect to any Purchased Loan and pledged to Seller as collateral for such Purchased Loan, with one or more counterparties whose unsecured debt is rated at least AA (or its equivalent) by any Rating Agency or, with respect to any Hedging Transaction pledged to Seller as additional collateral for a Purchased Loan, such other rating requirement applicable to such Hedging Transaction set forth in the related Purchased Loan Documents or which is otherwise reasonably acceptable to Buyer; provided that Seller shall not grant or permit any liens, security interests, charges, or encumbrances with respect to any such hedging arrangements for the benefit of any Person other than Buyer. "Income" means, with respect to any Purchased Loan at any time, any payment or other cash distribution thereon of principal, interest, dividends, fees, reimbursements or proceeds or other cash distributions thereon (including casualty or condemnation proceeds). "Person" means an individual, corporation, limited liability company, business trust, partnership, joint tenant or tenant-in-common, trust, unincorporated organization, or other entity, or a federal, state or local government or any agency or political subdivision thereof. "Purchased Loan Documents" shall mean, with respect to a Purchased Loan, the documents comprising the Purchased Loan File for such Purchased Loan. "Purchased Loan File" shall mean the documents specified as the "Purchased Loan File" in Section 7(b) of the Repurchase Agreement, together with any additional documents and Schedule 7-B-2 information required to be delivered to Buyer or its designee (including the Custodian) pursuant to the Repurchase Agreement. "Purchased Loans" means all Eligible Loans sold by Seller to Buyer and any additional cash and/or other assets delivered by Seller to Buyer pursuant to Section 4(a) of the Repurchase Agreement, including, without limitation, all Purchased Loans, the Purchased Loan File of which is held by the Custodian. Additional information with respect to the Purchased Loans may be obtained from the Secured Party. "Rating Agency" means any of Fitch Inc., Moody's Investor Service, Inc. and Standard & Poor's Rating Services, Inc., a division of McGraw Hill Companies Inc. "Repurchase Agreement" means that certain Master Repurchase Agreement dated as of May 28, 2003, between Goldman Sachs Mortgage Company and Capital Trust, Inc., (together with Annex I and such other annexes and schedules attached thereto) as the same may be amended, restated or otherwise modified from time to time. "Seller" means Debtor. SCHEDULE 1 1. [B] Participation Interest, dated _____ issued to __________. in the amount of $__________, in that certain Mortgage Loan [(in the original principal amount of $__________)], dated as of _______, made by ___________. to _________ under and pursuant to that certain Loan Agreement dated as of ________ between _________ and _________ and secured by that certain property located in _________, [as such B Participation Interest was assigned by _________ to CTMP III GS Finance Sub, LLC pursuant to that certain Assignment and Assumption Agreement (Participation B) dated as of _________]. 2. [$__________ [Senior/Junior] Mezzanine Loan, dated as of _________ made by _________ to _________, under and pursuant to that certain [Loan Agreement] dated as of _________ between _________ and _________, [as assigned (together with such loan agreement and all of the other loan documents evidencing and securing such senior mezzanine loan) by _________ to CTMP III GS Finance Sub, LLC pursuant to that certain Omnibus Assignment dated as of _________]. Schedule 7-B-3 EXHIBIT I CONFIRMATION STATEMENT GOLDMAN SACHS MORTGAGE COMPANY Ladies and Gentlemen: Goldman Sachs Mortgage Company is pleased to deliver our written CONFIRMATION of our agreement (subject to satisfaction of the Transaction Conditions Precedent) to enter into the Transaction pursuant to which Goldman Sachs Mortgage Company shall purchase from you the Purchased Loans identified in Schedule I attached hereto, pursuant to the Master Repurchase Agreement between Goldman Sachs Mortgage Company (the "Buyer") and Capital Trust, Inc. ("Seller"), dated as of May , 2003 (as amended from time to time the "Agreement"; capitalized terms used herein without definition have the meanings given in the Agreement), as follows below and on the attached Schedule 1:
Purchase Date: __________, 200_ Purchased Loans: As identified on attached Schedule 1 Aggregate Principal Amount of As identified on attached Schedule 1 Purchased Loans: Repurchase Date: __________, 200_ Purchase Price: $ Pricing Rate: One-month LIBOR plus ______% Purchase Percentage: Applicable Spread: Governing Agreements: As identified on attached Schedule 1 Name and address for Buyer: Goldman Sachs Mortgage Company communications: 85 Broad Street New York, New York 10004 Attention: Mr. Marc Flamino Telephone: (212) 357-4727 Telecopy: (212) 902-1691 with a copy to: Cleary Gottlieb Steen & Hamilton One Liberty Plaza New York, New York 10006 Attention: Kimberly Brown Blacklow Telephone: (212) 225-2018 Telecopy: (212) 902-1691 Seller: -------
Exhibit I-1
Capital Trust, Inc. 410 Park Avenue, 14th Floor New York, NY 10022 Attention: Geoffrey Jervis Telephone: 212-655-0247 Telecopy: 212-655-0044 with a copy to Paul Hastings Janofsky & Walker LLP 75 East 55th Street, New York, NY 10022 Attention: Robert J. Grados Telephone: 212-318-6923 Telecopy: 212-230-7830 GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership By: Goldman Sachs Real Estate Funding Corp., its general partner By: ------------------------------- Name: Title: AGREED AND ACKNOWLEDGED: CAPITAL TRUST, INC., a Maryland corporation By: __________________________________ Name: Title:
Exhibit I-2
Schedule 1 to Confirmation Statement Purchased Loans: [Mezzanine Loan/ Participation Interest] dated as of [______] in the original principal amount of $[___], made by [____] to [____] under and pursuant to that certain [loan agreement/participation agreement/ applicable document]. Aggregate Principal Amount: Purchase Price:
Exhibit I-3 EXHIBIT II AUTHORIZED REPRESENTATIVES OF SELLER ------------------------------------ Name Specimen Signature - ---- ------------------ John R. Klopp _____________________________ Stephen D. Plavin _____________________________ Brian H. Oswald _____________________________ Exhibit II-1 EXHIBIT III FORM OF CUSTODIAL DELIVERY CERTIFICATE On this _____ day of _____________ 2003, CAPITAL TRUST, INC. ("Seller"), under that certain Custodial Agreement, dated as of May __, 2003 (the "Custodial Agreement"), among Seller, DEUTSCHE BANK TRUST COMPANY AMERICAS, as Custodian, and GOLDMAN SACHS MORTGAGE COMPANY, as Buyer, does hereby deliver to, and instruct, the Custodian to hold, in its capacity as Custodian for the benefit of Buyer, the documents comprising the Purchased Loan File and listed on Attachment A hereto with respect to each Purchased Loan to be purchased by Buyer, which Purchased Loans are listed on the Purchased Loan Schedule attached hereto as Attachment B and which Purchased Loans shall be subject to the terms of the Custodial Agreement as of the date hereof. With respect to the Purchased Loan Files delivered herewith, for purposes of issuing the Trust Receipt, the Custodian shall review the Purchased Loan Files to confirm receipt of each of the documents identified on Attachment A. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Custodial Agreement. IN WITNESS WHEREOF, Seller has caused this Custodial Delivery Certificate to be executed and delivered by its duly authorized officer as of the day and year first above written. CAPITAL TRUST, INC. By: -------------------- Name: Title: Exhibit III-1 Attachment B Purchased Loan Schedule ----------------------- (a) Loan Number/Loan Type (b) Obligor Name (c) Property Address (d) Original Balance (e) Original Coupon (f) Outstanding Balance (g) Maturity Date (h) Table Funding (Yes/No) (i) If Participation, the name of the lead lender under the Purchased Loan (j) Such information as Buyer and Custodian shall agree and that the Buyer shall set forth in writing, on a case-by-case basis. Exhibit III-2 EXHIBIT IV-1 FORM OF POWER OF ATTORNEY TO BUYER ---------------------------------- "Know All Men by These Presents, that Capital Trust, Inc. ("Seller"), does hereby appoint Goldman Sachs Mortgage Company ("Buyer"), in connection with the Repurchase Agreement (defined below) its attorney-in-fact to act in Seller's name, place and stead in any way which Seller could do with respect to (i) the completion of the endorsements of the Mortgage Notes and the Assignments of Mortgages and the Mezzanine Notes, (ii) the recordation of the Assignments of Mortgages and (iii) the enforcement of Seller's rights under the Purchased Loans purchased by Buyer pursuant to the Master Repurchase Agreement dated as of May 28, 2003 , as amended from time to time, between Seller and Buyer (the "Repurchase Agreement") and to take such other steps as may be necessary or desirable to enforce Buyer's rights against such Purchased Loans, the related Purchased Loan Files, the Servicing Records and the Hedging Transactions to the extent that Seller is permitted by law to act through an agent. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Repurchase Agreement. TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OF FACSIMILE OF THIS INSTRUMENT MAY ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OR SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND SELLER ON ITS OWN BEHALF AND ON BEHALF OF SELLER'S ASSIGNS, HEREBY AGREES TO INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT. IN WITNESS WHEREOF Seller has caused this Power of Attorney to be executed and the Seller's seal to be affixed this _____ day of May __, 2003. CAPITAL TRUST, INC. By: --------------------------- Name: Title: Exhibit IV-1-1 STATE OF NEW YORK ) COUNTY OF NEW YORK ) On this _____ of ____________, before me, the undersigned, a Notary Public in and for said state, personally appeared _______________________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. ------------------------ Notary Public (Seal) Exhibit III-2 EXHIBIT IV-2 FORM OF POWER OF ATTORNEY TO SELLER ----------------------------------- Know All Men by These Presents, that Goldman Sachs Mortgage Company ("Buyer") does hereby appoint Capital Trust, Inc. ("Seller"), its attorney-in-fact to act in Buyer's name, place and stead in any way which Buyer could with respect to modifications described below, to mortgage loan documents with respect to Purchased Loans sold by Seller to Buyer under that certain Master Repurchase Agreement, dated as of May 28, 2003 (as amended from time to time, the "Repurchase Agreement"). Capitalized terms used herein and not otherwise defined shall have the meaning given such terms in the Repurchase Agreement. Seller is permitted to administer and service the Purchased Loans without the consent of Buyer, any assignee or any other Person, pursuant to this power of attorney delivered by Buyer, which power of attorney shall not be revoked by Buyer unless an Event of Default under the Repurchase Agreement has occurred and is then continuing. Notwithstanding the foregoing, Seller shall not consent or assent to a Significant Modification to or any extension or termination of any note, loan agreement, mortgage, pledge agreement or guaranty relating to the Purchased Loans or other material agreement or instrument relating to the Purchased Loans without the prior written consent of Buyer. All waivers or material actions entered into or taken in respect of the Purchased Loans pursuant to this power of attorney shall be in writing. Seller shall notify Buyer and the Custodian, in writing, of any waiver or other action entered into or taken thereby in respect of any such Purchased Loan pursuant to this power of attorney, and shall deliver to Custodian (with a copy to Buyer) for deposit in the related Purchased Loan File, an original counterpart of the agreement, if any, relating to such waiver or other action, within three (3) Business Days following the execution thereof. Actions taken under the foregoing power of attorney shall be binding upon each holder of the Purchased Loans. "Purchased Loan" shall mean any loan or other mezzanine investment sold by Seller to Buyer and any additional assets delivered by Seller to Buyer pursuant to the Repurchase Agreement. "Significant Modification" shall mean any modification or amendment of a Purchased Loan which: (ix) reduces the principal amount of the Purchased Loan in question other than (1) with respect to a dollar-for-dollar principal payment or (2) reductions of principal to the extent of deferred, accrued or capitalized interest added to principal which additional amount was not taken into account by Buyer in determining the related Purchase Price, (x) increases the principal amount of a Purchased Loan other than increases which are derived from accrual or capitalization of deferred interest which is added to principal or protective advances, (xi) modifies the payments of principal and interest when due of the Purchased Loan in question, (xii) changes the frequency of scheduled payments of principal and interest in respect of a Purchased Loan, Exhibit IV-2-1 (xiii) subordinates the lien priority of the Purchased Loan or the payment priority of the Purchased Loan other than subordinations expressly required under the then existing terms and conditions of the Purchased Loan (provided, however, the foregoing shall not preclude the execution and delivery of subordination, nondisturbance and attornment agreements with tenants, subordination to tenant leases, easements, plats of subdivision and condominium declarations and similar instruments which in the commercially reasonable judgment of Seller do not materially adversely affect the rights and interest of the holder of the Purchased Loan in question), (xiv) releases any collateral for the Purchased Loan other than releases required under the then existing Purchased Loan documents or releases in connection with eminent domain or under threat of eminent domain, (xv) waives, amends or modifies any cash management or reserve account requirements of the Purchased Loan other than changes required under the then existing Purchased Loan documentation, or (xvi) waives any due-on-sale or due-on-encumbrance provisions of the Purchased Loan other than waivers required to be given under the then existing Purchased Loan documents. Exhibit IV-2-2 THIS POWER OF ATTORNEY MAY BE REVOKED BY BUYER BY DELIVERY OF WRITTEN NOTICE TO SELLER DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT UNDER THE REPURCHASE AGREEMENT. IF THIS POWER OF ATTORNEY HAS NOT BEEN REVOKED AND IF REQUESTED BY Seller, Buyer will promptly confirm in writing to Seller, and any other Person or entity reasonably designated by Seller, that this Power of Attorney has not been revoked and is in full force and effect. IN WITNESS WHEREOF Seller has caused this Power of Attorney to be executed and the Buyer's seal to be affixed this __ day of May __, 2003. GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership By: Goldman Sachs Real Estate Funding Corp., its general partner By: --------------------------------- Name: Title: Exhibit IV-2-3 EXHIBIT V REPRESENTATIONS AND WARRANTIES REGARDING THE PURCHASED LOANS ----------------------------- With respect to each Purchased Loan, Seller represents and warrants on each Purchase Date as follows, other than as set forth on the exception report provided to Buyer in accordance with the Agreement: 1. Ownership of Purchased Loans. Immediately prior to the transfer to Buyer of the Purchased Loan, Seller had good title to, and was the sole owner of, the Purchased Loan. Seller has full right, power and authority to transfer and assign the Purchased Loans to or at the direction of Buyer and has validly and effectively conveyed (or caused to be conveyed) to Buyer or its designee all of Seller's legal and beneficial interest in and to the Purchased Loan free and clear of any and all pledges, liens, charges, security interests and/or other encumbrances. The sale of the Purchased Loan to Buyer or its designee does not require Seller to obtain any approval or consent that has not been obtained. No Purchased loan sold to Buyer hereunder was acquired by Seller from an Affiliate of Seller unless otherwise approved by Buyer in writing. 2. Additional Representations: As to each Purchased Loan that is a Mortgage Loan or a First Mortgage B-Note and to the extent applicable, each Mezzanine Loan and Other Mezzanine Investment and the related Mortgaged Properties on a Purchase Date and each date on which Market Value is determined, Seller shall be deemed to make the following representations and warranties to Buyer as of such date: (a) Purchased Loan Schedule and Purchased Loan Information. The information set forth in the Purchased Loan Schedule and the Purchased Loan Information is complete, true and correct in all material respects. (b) Payment Record. The Purchased Loan has not been since the date of origination, and currently is not, thirty (30) or more days delinquent, and the underlying obligor is not in default thereunder beyond any applicable grace period for the payment of any obligation to pay principal and interest, taxes, insurance premiums and required reserves. (c) Purchased Loan Document Status. (i) The Purchased Loan Documents have been, to the extent necessary, duly and properly executed, and the Purchased Loan Documents, to the extent applicable, are legal, valid and binding obligations of the underlying obligor, and their terms are enforceable against the underlying obligor, subject only to bankruptcy, insolvency, moratorium, fraudulent transfer, fraudulent conveyance and similar laws affecting rights of creditors generally and to the application of general principles of equity; (ii) the Purchased Loan Documents contain customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against each related Mortgaged Property of the material benefits of the security, including realization by judicial or, if applicable, non-judicial foreclosure, and there is no exemption available to the underlying obligor which would materially interfere with such right to foreclosure; and (iii) there is no valid defense, counterclaim or right of offset or rescission available to the related underlying obligor with respect to any Purchased Loan Document. (d) Title Insurance. Each Mortgaged Property is covered by an American Land Title Association (or an equivalent form thereof as adopted in the applicable jurisdiction) owner's and lender's title Exhibit V-1 insurance policy (the "Title Policy") in the original principal amount of the related Purchased Loan after all advances of principal. Each lender's Title Policy insures that the related Mortgage is a valid first or second, as applicable, priority lien on such Mortgaged Property, subject only to (i) the lien of current real property taxes, ground rents, water charges, sewer rents and assessments not yet due and payable; (ii) covenants, conditions and restrictions, rights of way, easements and other matters of public record, none of which, individually or in the aggregate, in the reasonable judgment of Seller, materially interferes with the current use of the related Mortgaged Property or the security intended to be provided by such Mortgage or with the underlying obligor's ability to pay its obligations when they become due or the value of the related Mortgaged Property; (iii) the exceptions (general and specific) set forth in such policy, none of which, individually or in the aggregate, in the reasonable judgment of Seller, materially interferes with the current use of the related Mortgaged Property or security intended to be provided by such Mortgage, with the underlying obligor's ability to pay its obligations when they become due or the value of the related Mortgaged Property; and (iv) in the event such Title Policy has yet to be issued, an escrow letter or a marked up title insurance commitment on which the required premium has been paid exists which evidences that such Title Policy will be issued. Each Title Policy (or, if it has yet to be issued, the coverage to be provided thereby) is in full force and effect, all premiums thereon have been paid and, to Seller's knowledge, no material claims have been made thereunder and no claims have been paid thereunder. No holder of the related Mortgage has done, by act or omission, anything that would materially impair the coverage under such Title Policy. Immediately following the transfer and assignment of the related Purchased Loan to Buyer, such Title Policy (or, if it has yet to be issued, the coverage to be provided thereby) will inure to the benefit of Buyer as its interest may appear without the consent of or notice to the insurer. In the case of a Mezzanine Loan, if obtained, an Eagle 9 UCC Title Policy ("UCC Policy") insures Seller's security interest in the equity interest pledged thereunder. Each UCC Policy insures that Seller has a first priority perfected security interest in the pledged equity interests and provides coverage in an amount equal to the original principal amount of the related Purchased Loan and immediately following the transfer and assignment of the related Purchased Loan to Buyer, such UCC Policy (or, if it has yet to be issued, the coverage to be provided thereby) will inure to the benefit of Buyer as its interest may appear without the consent of or notice to the insurer. (e) No Mechanics' Liens. There are no mechanics', materialman's or other similar liens or claims which have been filed for work, labor or materials affecting the Mortgaged Property which are or may be liens prior to, or equal or coordinate with, the lien of the Mortgage, unless such lien is insured against under the related title insurance policy. (f) Insurance. Each Mortgaged Property, including any buildings or other improvements thereon, is, and is required pursuant to the related Mortgage to be, insured by (a) a fire and extended perils insurance policy issued by an insurer meeting the requirements of such Purchased Loan providing coverage against loss or damage sustained by reason of fire, lightning, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, terrorism, aircraft, vehicles and smoke, and, to the extent required as of the date of origination by the originator of such Purchased Loan consistent with its normal commercial mortgage lending practices, against other risks, insured against by persons operating like properties in the locality of the Mortgaged Property in an amount not less than the replacement cost of the Mortgaged Property; (b) a business interruption or rental loss insurance policy, in an amounts generally required by institutional lenders for similar properties (including coverage for terrorism); (c) a flood insurance policy (if any portion of the Mortgaged Property is located in an area identified by the Federal Emergency Management Agency as having special flood hazards) and (d) a comprehensive general liability insurance policy in amounts as are generally required by commercial mortgage lenders. Such insurance policy contains a standard mortgagee clause that names Seller as an additional insured and that requires at least thirty days' (in the case of termination or cancellation other than for nonpayment of premiums) and at least ten days' (in the case of termination or cancellation for nonpayment of premiums) prior notice to the holder of the Mortgage, and no such notice has been received, including any notice of Exhibit VI-2 nonpayment of premiums, that has not been cured. The Purchased Loan Documents obligate the underlying obligor to maintain or cause to be maintained all such insurance and, at the underlying obligor's failure to do so, authorize the holder of the Mortgage to maintain such insurance at the underlying obligor's cost and expense and to seek reimbursement therefor from such underlying obligor. (g) Condition of the Property; Condemnation. No building or other improvement on any Mortgaged Property has been affected in any material manner or suffered any material loss as a result of any fire, wind, explosion, accident, riot, war, or act of God or the public enemy, and each Mortgaged Property is free of any material damage that would affect materially and adversely the value of the Mortgaged Property as security for the Purchased Loan and is in good repair. Seller has neither received notice, nor is otherwise aware, of any proceedings pending for the total condemnation of any Mortgaged Property or a partial condemnation of any portion material to the related underlying obligor's ability to perform its obligations under the related Purchased Loan. (h) Encroachments; Zoning. None of the improvements located on any Mortgaged Property lies outside of the boundaries and building restriction lines of the Mortgaged Property, and no improvements on adjoining properties materially encroach upon the Mortgaged Property except those which are insured against by the title insurance policy (including endorsements thereto) issued in connection with the Purchased Loan and all improvements on the Mortgaged Property comply with the applicable zoning laws and/or set-back ordinances in force when improvements were added. (i) Compliance with Usury Laws. The Purchased Loan, and all parties involved in the origination and servicing of the Purchased Loan, complied as of the date of origination with, or is exempt from, applicable state or federal laws, regulations and other requirements pertaining to usury. Any and all other requirements of any federal, state or local laws, including, without limitation, truth-in-lending, real estate settlement procedures, equal credit opportunity or disclosure laws, applicable to the Purchased Loan have been complied with. (j) Mortgage Status; Waivers and Modifications. Since the date of origination of the Purchased Loan, the terms of the Purchased Loan have not been impaired, waived, altered, satisfied, canceled, subordinated or modified in any respect (except with respect to modifications the economic terms of which are reflected in the Purchased Loan Schedule and which are evidenced by documents in the Purchased Loan File delivered to the Custodian) and no portion of the Mortgaged Property has been released from the lien of the Mortgage or other Purchased Loan Document in any manner. (k) Mortgage Recording Taxes. All applicable Mortgage recording taxes and other filing fees have been paid in full or deposited with the issuer of the title insurance policy issued in connection with the Mortgage Loan for payment upon recordation of the relevant documents. (l) Assignment of Leases. Each Assignment of Leases, if any, creates a valid assignment of, or a valid first or second priority, as applicable, security interest in the related underlying obligor's interest in all leases, sub-leases, licenses or other agreements pursuant to which any Person is entitle to occupy, use or possess all of any portion of the related Mortgage, subject only to a license granted to the relevant underlying obligor to exercise certain rights and to perform certain obligations of the lessor under such leases, including the right to operate the related Mortgage Property, subject only to those exceptions described in clause (e) above. No person other than the relevant underlying obligor owns any interest in any payments due under such leases that is superior to or of equal priority with the mortgagee's interest therein, subject only to those exceptions described in clause (d) above. (m) Underlying Representations and Warranties. Seller has taken no action, nor has the underlying obligor taken any action, that would cause the representations and warranties made by the underlying obligor in any of the Purchased Loan Documents not to be true. Exhibit VI-3 (n) No Holdbacks. The proceeds of the Purchased Loan have been fully disbursed and there is no obligation for future advances with respect thereto. With respect to each Purchased Loan, any and all requirements as to completion of any on-site or off-site improvement and as to disbursements of any funds escrowed for such purpose that were to have been complied with on or before the Purchase Date have been complied with, or any such funds so escrowed have not been released. (o) Inspections. Seller or its representative has inspected or caused to be inspected each Mortgaged Property within six (6) months preceding the related Purchase Date. The Purchased Loan File for Mortgaged Property constituting real property includes a property survey, certified to the Seller, its successors and assigns, and the title insurance company, reciting that it is in accordance with most recent minimum standards for title surveys as determined by the ALTA, with the signature and seal of a licensed engineer or surveyor affixed thereto. (p) Contingent Interest; Convertible Notes. The Purchased Loan does not have a shared appreciation feature, other contingent interest feature or negative amortization. The indebtedness evidenced by the Mortgage Note is not convertible to an ownership interest in the Mortgaged Property or the Mortgage, and Seller has not financed, nor does it own, directly or indirectly, any equity of any form in the Mortgaged Property or the underlying obligor. The Mortgage Note or Mezzanine Note, as applicable, does not by its terms provide for the capitalization or forbearance of interest. (q) Cross-Collateralization; Cross-Default. The Purchased Loan is not cross-collateralized or cross-defaulted with any other loan other than another Purchased Loan, is a whole loan and contains no equity participation by the lender. (r) Fraud. No fraudulent acts were committed by Seller in connection with the origination process of the Purchased Loan. (s) Taxes and Assessments. All taxes, water charges, sewer rates, governmental assessments, insurance premiums, leasehold payments and any other outstanding fees or charges that prior to the date of origination of the Purchased Loan became due and owing in respect of the related Mortgaged Property have been paid, or an escrow of funds in an amount sufficient to cover such payments has been established or are insured against by the title insurance policy issued in connection with the origination of the Purchased Loan. (t) No Material Default. No loan is a Defaulted Loan and there is no material default, breach, violation or event of acceleration existing under any of the Purchased Loan Documents and Seller has not received actual notice of any event (other than payments due but not yet delinquent) which, with the passage of time or with notice and the expiration of any grace or cure period, would and does constitute a default, breach, violation or event of acceleration; no waiver of the foregoing exists and no person other than the holder of the Mortgage Note or Mezzanine Note, as the case may be, may declare any of the foregoing. (u) Environmental Conditions. With respect to each Mortgaged Property, a environmental site assessment conducted by a licensed qualified engineer. Seller has reviewed each such report and update. Where such environmental report disclosed the existence of a material and adverse environmental condition or circumstance affecting any Mortgaged Property, (i) a party not related to the underlying obligor was identified as the responsible party for such condition or circumstance, (ii) the related underlying obligor was required either to provide additional security and/or to obtain an operations and maintenance plan or (iii) the related underlying obligor provided evidence that applicable federal, state or local governmental authorities would not take any action, or require the taking of any action, in respect of such condition or circumstance. The related Purchased Loan Documents contain provisions pursuant to which the related underlying obligor or a principal of such underlying obligor has agreed to indemnify the mortgagee for damages resulting from violations of any applicable environmental laws. Seller, having Exhibit VI-4 made no independent inquiry other than reviewing the environmental reports and updates referenced herein and without other investigation or inquiry, has no knowledge of any material and adverse environmental condition or circumstance affecting any Mortgaged Property that was not disclosed in the related report and/or update. Each Mortgage requires the related Mortgagor to comply with all applicable federal, state and local environmental laws and regulations in all material respects. Seller has not received any actual notice of a material violation of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or any applicable federal, state or local environmental law with respect to any Mortgaged Property that was not disclosed in the related report and/or update. Seller has not taken any actions which would cause any Mortgaged Property not to be in compliance with all federal, state and local laws pertaining to environmental hazards. (v) Acceleration. The Purchased Loan Documents contain provisions for the acceleration of the payment of the unpaid principal balance of the Purchased Loan if (A) the underlying obligor voluntarily transfers or encumbers all or any portion of any related Mortgaged Property; or (B) any direct or indirect interest in underlying obligor is voluntarily transferred or assigned, other than, in each case, as permitted under the terms and conditions of the Purchased Loan Documents. (w) Actions Concerning Purchased Loans. There is no pending action, suit or proceeding, arbitration or governmental investigation against the underlying obligor or any Mortgaged Property an adverse outcome of which is reasonably likely to result in a Material Adverse Effect. (x) Servicing. The servicing and collection practices used by Seller, and the origination practices of Seller, to the extent applicable, have been in all respects legal, proper and prudent and have met customary industry standards. (y) Assignability. In connection with the assignment, transfer or conveyance of any individual Mortgage, the Mortgage Note and Mortgage contain no provision limiting the right or ability of Seller to assign, transfer and convey the Mortgage to any person or entity. (z) Buyer under a Deed of Trust. If a Mortgage is a deed of trust, a trustee, duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in the deed of trust, and no fees or expenses are or will become payable to the trustee under the deed of trust, except in connection with the sale or release of the Mortgaged Property following default or payment of the Purchased Loan. (aa) Insurance Proceeds. The Mortgage provides that any insurance proceeds in respect of a casualty loss or taking will be applied either to the repair or restoration of all or part of the related Mortgaged Property, with the mortgagee or a trustee appointed by it having the right to hold and disburse such proceeds (provided that such proceeds exceed the threshold amount described in the loan documents) as the repair or restoration progresses, or to the payment of the outstanding principal balance of the Purchased Loan together with any accrued interest thereon, except to the extent of any excess proceeds after restoration. (bb) Flood Zone. No Mortgaged Property is located in a special flood hazard area as defined by the Federal Emergency Management Agency or if it is, flood insurance is required and has been received under the Mortgage. (cc) Ground Lease. No Mortgage is secured in whole or in part by the interest of a borrower as a lessee under a ground lease. (dd) Certificate of Occupancy. Certificates of occupancy and building permits, as applicable, have been issued with respect to Mortgaged Property. Exhibit VI-5 (ee) Escrow Deposits. Any escrow accounts for taxes or other reserves required to be funded on the date of origination of the Purchased Loan pursuant to the Purchased Loan Documents have been funded and all such escrow accounts required to have been funded as of the Purchase Date (taking into account any applicable notice and grace period) have been funded. (ff) Valid Assignment of Mortgage. The related Assignment of Mortgage constitutes a legal, valid and binding assignment of such Mortgage to Buyer, and the related reassignment of Assignment of Leases, rents and profits, if any, constitutes a legal, valid and binding assignment thereof to Buyer. (gg) Related Collateral. The related Mortgage Note, Mezzanine Note or B-Note, as applicable, is not, and has not been since the date of origination of the Purchased Loan, secured by any collateral except the lien of the related Mortgage, any related Assignment of Leases, any related security agreement and escrow agreement or other applicable Purchased Loan Document; and the related Mortgaged Property or Properties or other securities, as applicable, do not secure any loan other than the Purchased Loan being sold to Buyer hereunder (except for Purchased Loans, if any, which are cross-collateralized with other Purchased Loans being conveyed to Buyer hereunder and identified on the Purchased Loan Schedule). (hh) Licenses and Permits. As of the date of origination of the Purchased Loan, the related underlying obligor was in possession of all material licenses, permits and franchises required by applicable law for the ownership and operation of the related Mortgaged Property as it was then operated. (ii) Improvements; Origination. The Purchased Loan is directly (or in the case of an participation interest, indirectly) secured by a first or second lien on one or more parcels of real estate upon which is located one or more multifamily or commercial structures; and the Purchased Loan was originated by a savings and loan association, savings bank, commercial bank, credit union, insurance company, or similar institution which is supervised and examined by a Federal or State authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to Sections 203 and 211 of the National Housing Act. (jj) Tenants. As to each Purchased Loan secured by Mortgaged Property which is leased to tenants: (i) the Mortgaged Property is not subject to any leases other than the leases described in the rent roll contained in the Purchased Loan Documents (hereinafter referred to as the "Leases"), and such rent roll is accurate and complete in all material respects, including description of the rent and term and any extraordinary rights of tenants (such as option, rights of first refusal and rights of termination). No Person has any possessory interest in the Mortgaged Property or right to occupy the same except under and pursuant to the provisions of the Leases. Each Lease of all or any portion of the Mortgaged Property is subordinate to the Mortgage, unless otherwise approved by the Buyer; (ii) each such commercial tenant is conducting business, and each such residential tenant is residing, only in that portion of the Mortgaged Property covered by its lease; (B) no leases contain any option to purchase, any right of first refusal to lease or purchase, any right to terminate the lease or vacate the premises prior to expiration of the lease term, or any other similar provisions which adversely affect the Mortgaged Property or which might adversely affect the rights of any holder of the Purchased Loan; (iii) no Lease contains a non-disturbance or similar recognition agreement; (iv) (A) except as otherwise disclosed to Buyer in writing, there are no prior recorded assignments of the Leases or of any portion of the rents, additional rents, charges, issues or profits due and payable or to become due and payable thereunder (hereinafter collectively referred to as the "Rents") which are now outstanding and have priority over the assignment of Exhibit VI-6 leases contained in the Purchased Loan Documents and given in connection with the Purchased Loan; (B) except as may be disclosed in the rent roll contained in the Purchased Documents, no tenant is more than twenty-nine (29) days delinquent in the payment of rent nor in default under any material provision of its Lease, all material conditions and obligations on the underlying obligor's part to be fulfilled under the terms of any Lease of the Mortgaged Property have been satisfied or fully performed, and all Leases are in full force and effect; and (C) each Lease provides for payment of rent by check on a monthly basis; no tenant has advanced more than one (1) month's payment under any Lease; and no Person affiliated with the underlying obligor is a tenant under any Lease; and (v) the underlying obligor is the owner and holder of the landlord's interest under any leases, and the related Mortgage and assignment of leases, rents and profits, if any, provides for the appointment of a receiver for rents or allows the mortgagee to enter into possession to collect rent or provide for rents to be paid directly to mortgagee in the event of a default, subject to the exceptions described in clause (e) of this Exhibit V. (kk) Bankruptcy. Seller has not been served with notice that any underlying obligor is a debtor in any state or federal bankruptcy or insolvency proceeding. (ll) Access; Separate Tax Parcels. At the time of origination, (i) all amenities, access routes or other items crucial to the related appraised value of the Mortgaged Property were under the direct control of the underlying obligor or, subject to easements for the benefit of the underlying obligor, are public property; and (ii) the Mortgaged Property was contiguous to a physically open, dedicated all-weather public street, had all necessary permits and approvals for ingress and egress, was adequately serviced by public water, sewer systems and utilities and was on a separate Tax parcel, separate and apart from any other property owned by the underlying obligor or any other person. The Mortgaged Property has all necessary access by public roads or by easements which in each case are not terminable and are not subordinated to any mortgage other the related Mortgage. (mm) Appraisal. The Purchased Loan File contains an Appraisal that is signed by a qualified appraiser, duly appointed by Seller, who, to Seller's knowledge, had no interest, direct or indirect, in the Mortgaged Property or in any loan made on the security thereof, and whose compensation is not affected by the approval or disapproval of the Purchased Loan, and the Appraisal and appraiser both satisfy the requirements of Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and the regulations promulgated thereunder, all as in effect on the date the Purchased Loan was originated. (nn) Junior Liens. The Purchased Loan does not permit the related Mortgaged Property to be encumbered by any lien junior to or of equal priority with the lien of the related Mortgage without the prior written consent of the holder thereof or the satisfaction of debt service coverage or similar criteria specified therein. To Seller's knowledge, except as disclosed, the related Mortgaged Property is not encumbered by any lien junior to the lien of the related Mortgage. The Purchased Loan contains a "due on sale" clause that provides for the acceleration of the payment of the unpaid principal balance of the Purchased Loan if, without the prior written consent of the holder of the Purchased Loan, the related Mortgaged Property is transferred or sold. (oo) Defeasance. Any Purchased Loan containing provisions for defeasance of mortgage collateral either (i) requires the prior written consent of, and compliance with the conditions set by, the holder of the Purchased Loan, or (ii) requires that (A) defeasance may not occur prior to the time permitted by applicable "real estate mortgage investment conduit" rules and regulations (if applicable), (B) the replacement collateral consist of U.S. governmental securities in an amount sufficient to make all scheduled payments under the Mortgage Note when due, (C) independent public accountants certify that the collateral is sufficient to make such payments, (D) counsel provide an opinion that Buyer has a Exhibit VI-7 perfected security interest in such collateral prior to any other claim or interest, and (E) all costs and expenses arising from the defeasance of the mortgage collateral shall be borne by the borrower. (pp) Operating or Financial Statement. The related Purchased Loan Documents require the related borrower to furnish to the mortgagee at least annually an operating statement with respect to the related Mortgaged Property. (qq) No Advances of Funds. No party to the Purchased Loan Documents has advanced funds on account of any default under the Purchased Loan or under the underlying real property mortgage documents. (rr) Perfection of Security Interests. A Uniform Commercial Code financing statement has been filed and/or recorded in all places necessary to perfect a valid security interest in such personal property, and such security interest is a first or second priority security interest, subject to any prior purchase money security interest in such personal property and any personal property leases applicable to such personal property. The pledge of ownership interests securing any Purchased Loan that is a Mezzanine Loan relates to direct or indirect equity or ownership interests in the underlying real property owner and has been fully perfected in favor of Seller as mezzanine lender. To the extent the pledged ownership interests have not been certificated pursuant to the terms of any Purchased Loan that is a Mezzanine Loan, the terms of such Mezzanine Loan and the related organizational documents of the underlying real property owner prohibit the subsequent certification thereof. (ss) Lockbox. The lockbox administrator with respect to the related Purchased Loan, if any, is not an Affiliate of Seller. (tt) No Plan Assets. The borrower under the Purchased Loan does not, and would not be deemed to, hold Plan Assets at any time. Exhibit VI-8 EXHIBIT VI FORM OF BLOCKED ACCOUNT AGREEMENT Blocked Account Agreement - ------------------------- May 28, 2003 PNC Bank, National Association Treasury Management Two PNC Plaza, 31st Floor 620 Liberty Avenue Pittsburgh, PA 15222 Attn: Jacqueline Rizzo Re: Blocked Account established by Capital Trust, Inc. ("Seller") and Midland Loan Services, Inc. ("Servicer") pursuant to the Master Repurchase Agreement dated as of May 28, 2003 (as amended, supplemented or otherwise modified from time to time, the "Repurchase Agreement") among the Seller and Goldman Sachs Mortgage Company ("Buyer") Ladies and Gentlemen: We refer to the collection account established by the Seller and the Buyer, pursuant to the Repurchase Agreement, at PNC Bank, National Association ("Depository Bank"), entitled "Goldman Sachs Mortgage Company, as Buyer under that certain Master Repurchase Agreement, dated May 28, 2003" Account No. 1015527379, ABA # 043000096, PNC Bank, Pittsburgh, PA, (the "Collection Account" or the "Blocked Account"). Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Repurchase Agreement. In the event of a conflict between the terms of the Repurchase Agreement or any Transaction entered into thereunder and this Blocked Account Agreement, the Repurchase Agreement shall prevail. Notwithstanding the previous sentence, this Blocked Account Agreement will govern and control the performance of Depository Bank. 1. Seller shall, and shall cause the Servicer, from time to time, to deposit or cause to be deposited directly into, or if applicable, remitted directly from the applicable underlying collection account to, the Collection Account all Income (including Principal Payments) with respect to the Portfolio Loans, which may include payments in respect of associated Hedging Transactions pledged to Buyer and related to the Portfolio Loans. The Buyer has established a repurchase arrangement with the Seller. By its execution of this letter, the Seller acknowledges that it has transferred all of the Seller's right, title and interest in and to the Blocked Account and any funds from time to time on deposit therein, that such funds are received by Depository Bank for Buyer and are for application against the Seller's liabilities to the Buyer under the Repurchase Agreement. 2. Funds in the Blocked Account shall be remitted in accordance with the most recent instructions originated by the Buyer without the further consent of the Seller (the "Distribution Exhibit VI-1 Instructions"), which the Buyer agrees, for the benefit of the Seller only, shall be in compliance with the provisions of the Repurchase Agreement. Until Depository Bank shall receive contrary instructions from Buyer, on each Business Day, the Depository Bank shall remit funds on deposit in the Blocked Account to the account of Seller as set forth in Schedule A hereto. 3. Buyer shall deliver the Distribution Instructions to the Depository Bank, Seller and Servicer by facsimile by no later than 12:00 p.m. (New York City time) on the Business Day prior to each Remittance Date. 4. Depository Bank may rely upon any Distribution Instructions originated by Buyer, and Depository Bank shall not have any liability to Buyer for actions taken in reliance on such Distribution Instructions. All distributions made by the Servicer pursuant to this Section shall be (subject to any decree of any court of competent jurisdiction) final, and the Servicer shall have no duty to inquire as to the application by Buyer of any amounts distributed to it. 5. The Blocked Account shall be an interest bearing account. All income and gains from the investment of funds in the Blocked Account shall be retained in the Blocked Account until disbursed in accordance with Section 2 hereof. As between Seller and Buyer, Seller shall treat all income, gains and losses from the investment of amounts in the Blocked Account as its income or loss for federal, state and local income tax purposes. 6. The Blocked Account shall be subject to the sole control of the Buyer and, neither Seller nor Servicer shall have any right of withdrawal from the Blocked Account nor any right to deliver instructions to Depository Bank in respect of the Blocked Account. The Depositary Bank shall accept Distribution Instructions only from the Buyer at all times and shall comply with all instructions of Buyer without any further consent of Seller or Servicer being required. 7. The undersigned parties agree: (a) that Depository Bank will not exercise any right of set off, banker's lien or any similar right in connection with such funds, provided that Depository Bank may set off against the Blocked Account for fees and expenses payable hereunder, for returned deposit items and for adjustments and corrections in respect of transactions in the Blocked Account, including, without limitation, returned checks and other deposits with respect to which Depository Bank fails to receive final payment or settlement; (b) that Depository Bank shall not withdraw, transfer or otherwise dispose of funds from the Blocked Account or permit any other person or entity to withdraw, transfer or otherwise dispose of funds in the Blocked Account except in accordance with the terms of Section 2 hereof, the Distribution Instructions originated by Buyer, and the terms of this Section 7; (c) that for the purposes of the Uniform Commercial Code as in effect from time to time in the State of New York (the "UCC"), the Blocked Account is a "deposit account", as defined in Article 9 of the UCC; and (d) upon receipt of written notice of any lien, encumbrance or adverse claim against the Blocked Account or any funds credited thereto, Depository Bank will make reasonable efforts promptly to notify Seller, Buyer and Servicer thereof. The undersigned further agree that if there are insufficient collected funds in the Blocked Account to cover the amount of any returned check or other adjustment or correction to be debited thereto, Seller shall repay Depository Bank the amount of such debit immediately upon demand. If Seller fails to so repay Depository Bank, then, only after the occurrence and continuance of an Event of Default under the Repurchase Agreement, Buyer shall repay Depository Bank for such debit immediately upon demand to the extent that Buyer received the proceeds of the check or other deposit or credit to which the debit relates. Exhibit VI-2 8. In the event of a conflict between this Blocked Account Agreement and any other agreement between Depository Bank and Seller, the terms of this Blocked Account Agreement will prevail. 9. This Blocked Account Agreement shall continue in effect until Buyer has notified Depository Bank in writing that this Blocked Account Agreement is terminated. Notwithstanding the foregoing, Depository Bank may terminate this Agreement upon thirty (30) days written notice to the other parties ; provided that it may terminate this Agreement immediately upon prior written notice to the Buyer and Seller, in the event Depository Bank has a reasonable basis to suspect fraud or other illegal activity in connection with the Blocked Account or this Agreement. In the event of immediate termination by Depository Bank, Depository Bank shall transfer all funds in the Blocked Account to Buyer or to its designee, as directed in writing by Buyer. 10. This Blocked Account Agreement and the instructions and notices required or permitted to be executed and delivered hereunder set forth the entire agreement of the parties with respect to the subject matter hereof and supersede any prior agreement and contemporaneous oral agreements of the parties concerning its subject matter. 11. No amendment, modification or (except as otherwise specified in Section 9 above) termination of this Blocked Account Agreement, nor any assignment of any rights hereunder (except to the extent contemplated under Section 13 below), shall be binding on any party hereto unless it is in writing and is signed by each of the parties hereto, and any attempt to so amend, modify, terminate or assign except pursuant to such a writing shall be null and void. No waiver of any rights hereunder shall be binding on any party hereto unless such waiver is in writing and signed by the party against whom enforcement is sought. 12. If any term or provision set forth in this Blocked Account Agreement shall be invalid or unenforceable, the remainder of this Blocked Account Agreement, other than those provisions held invalid or unenforceable, shall be construed in all respects as if such invalid of unenforceable term or provision were omitted. 13. The terms of this Blocked Account Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective corporate successors. This Blocked Account Agreement may be assigned by Buyer, Seller and Servicer to any assignee of Buyer, Seller or Servicer, respectively, permitted under the Repurchase Agreement, provided that written notice thereof is given by the applicable assignor to Depository Bank. 14. This Blocked Account Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instruments, and any party hereto may execute this Blocked Account Agreement by signing and delivering one or more counterparts. 15. This Blocked Account Agreement shall be governed by and construed in accordance with the law of the State of New York. The parties agree that New York is the "bank's jurisdiction" for purposes of the UCC. 16. Depository Bank may rely, and Depository Bank shall be protected in acting, or refraining from acting, upon any notice (including but not limited to electronically confirmed facsimiles of such notice) believed by Depository Bank to be genuine and to have been given by the proper party or parties. Exhibit VI-3 17. Depository Bank's duties and obligations shall be determined solely by the provisions of this Agreement and Depository Bank shall not be liable except for the performance of its duties and obligations as are set forth herein. Depository Bank shall have no obligation to review, or confirm that any actions taken pursuant to this Agreement comply with, any other agreement or document. Depository Bank shall have no liability to any party to this Agreement or to any other party arising out of or in connection with this Agreement other than for its gross negligence or willful misconduct. Substantial compliance by Depository Bank with its standard procedures for the services Depository Bank is providing hereunder shall be deemed to be the exercise by it of ordinary care. In no event shall Depository Bank be liable for any lost profits or for any indirect, special, consequential or punitive damages even if advised of the possibility or likelihood of such damages. 18. Seller agrees to indemnify, defend and hold harmless Depository Bank and its affiliates and parent(s) and its and their respective officers, directors, employees, representatives and agents (each an "Indemnified Party") from and against all liabilities, losses, claims, damages, demands, costs and expenses of every kind ("Losses") including, without limitation, Losses incurred as a result of items being deposited in the Blocked Account and being unpaid for any reason, reasonable attorney's fees and the reasonable charges of Depository Bank's in-house counsel, incurred or sustained by any Indemnified Party arising out of Depository Bank's performance of the services contemplated by this Agreement, except to the extent such Losses are the direct result of the gross negligence or willful misconduct of Depository Bank. 19. If at any time Depository Bank is served with legal process which it in good faith believes prohibits the disbursement of the funds deposited in the Blocked Account, then Depository Bank shall have the right (i) to place a hold on the funds in the Blocked Account until such time as it receives an appropriate court order or other assurance satisfactory to it as to the disposition of the funds in the Blocked Account, or (ii) to commence, at Seller's expense, an interpleader action in any competent Federal or State Court located in the Commonwealth of Pennsylvania, and otherwise to take no further action except in accordance with joint written instructions from Seller and Buyer or in accordance with the final order of a competent court, served on Depository Bank. 20. All bank statements in respect to the Blocked Account shall be sent to Buyer and Seller as follows: Seller: ------- Capital Trust, Inc. 410 Park Avenue, 14th Floor New York, New York 10022 Attn: Mr. Geoffrey Jervis, Vice President Buyer: ------ Goldman Sachs Mortgage Company 85 Broad Street New York, New York 10004 Attn: Marc Flamino All notices to Depository Bank are to be sent to: PNC Bank, National Association Treasury Management Exhibit VI-4 Two PNC Plaza, 31st Floor 620 Liberty Avenue Pittsburgh, PA 15222 Attn: Risk Manager and Jacqueline Rizzo [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Exhibit VI-5 Kindly acknowledge your agreement with the terms of this agreement by signing the enclosed copy of this letter and returning it to the undersigned. Very truly yours, GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership By: Goldman Sachs Real Estate Funding Corp., its general partner By: ------------------------------ Title: Agreed and acknowledged: PNC BANK, NATIONAL ASSOCIATION, a national banking association, as Depository Bank By:__________________________ Title: CAPITAL TRUST, INC., a Maryland corporation, as Seller By:___________________________ Title: MIDLAND LOAN SERVICES, INC., a Delaware corporation, as Servicer By:____________________________ Title: Exhibit VI-6 SCHEDULE A ---------- (Seller's Account Information) JP Morgan Chase Bank 380 Madison Avenue 11th Floor New York, NY 10017-2591 ABA#: 021-000021 Account # 230254632 Account Name: Capital Trust, Inc. Attention: Brian H. Oswald (212) 655-0256 Exhibit VI-7 EXHIBIT VII FORM OF DIRECTION LETTER Exhibit VII-1 EXHIBIT VIII FORM OF BAILEE AGREEENT [CAPITAL TRUST, INC. NAME AND ADDRESS] _______________ __, 20__ Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, New York 10022 Re: Bailee Agreement (the "Bailee Agreement") in connection with the sale of ______________ by Capital Trust, Inc. (the "Seller") to Goldman Sachs Mortgage Company (the "Buyer") Gentlemen and Mesdames: In consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller, the Buyer and Paul, Hastings, Janofsky & Walker LLP (the "Bailee") hereby agree as follows: 1. The Seller shall deliver to the Bailee in connection with any Purchased Loans delivered to the Bailee hereunder an Identification Certificate in the form of Attachment 1 attached hereto to which shall be attached a Purchased Loan Schedule identifying which Purchased Loans are being delivered to the Bailee hereunder. Such Purchased Loan Schedule shall contain the following fields of information: (a) the loan identifying number; (b) the obligor's name; (c) the street address, city, state and zip code for the applicable real property; (d) the original balance; and (e) the current principal balance if different from the original balance and such other information as the Seller and Buyer shall require. 2. On or prior to the date indicated on the Custodial Delivery Certificate delivered by the Seller (the "Funding Date"), the Seller shall have delivered to the Bailee, as bailee for hire, the original documents set forth on Schedule A attached hereto (collectively, the "Purchased Loan File") for each of the Purchased Loans (each a "Purchased Loan" and collectively, the "Purchased Loans") listed in Exhibit A to Attachment 1 attached hereto (the "Purchased Loan Schedule"). 3. The Bailee shall issue and deliver to the Buyer and the Custodian on or prior to the Funding Date by facsimile (a) in the name of the Buyer, an initial trust receipt and certification in the form of Attachment 2 attached hereto (the "Trust Receipt ") which Trust Receipt shall state that the Bailee has received the documents comprising the Purchased Loan File as set forth in the Custodial Delivery Certificate (as defined in that certain Custodial Agreement dated as of May 28, 2003, among Seller, Buyer and Custodian (as defined in Section 5 below), in addition to such other documents required to be delivered to Buyer and/or Custodian pursuant to the Master Repurchase Agreement dated as of May 28, 2003, between Seller and Buyer (the "Repurchase Agreement"). 4. On the applicable Funding Date, in the event that the Buyer fails to purchase any New Loan from the Seller that is identified in the related Custodial Delivery Certificate, the Buyer shall deliver by facsimile to the Bailee at (212) 655-0044 to the attention of Robert Grados, Esq., an authorization (the Exhibit VIII-2 "Facsimile Authorization") to release the Purchased Loan Files with respect to the Purchased Loans identified therein to the Seller. Upon receipt of such Facsimile Authorization, the Bailee shall release the Purchased Loan Files to the Seller in accordance with the Seller's instructions. 5. Following the Funding Date, the Bailee shall forward the Purchased Loan Files to Deutsche Bank Trust Company Americas, 1761 St. Andrew Place, Santa Ana, California 92705, Attention: Mortgage Custody-QT020C (the "Custodian") by insured overnight courier for receipt by the Custodian no later than 1:00 p.m. on the third Business Day following the applicable Funding Date (the "Delivery Date"). 6. From and after the applicable Funding Date until the time of receipt of the Facsimile Authorization or the applicable Delivery Date, as applicable, the Bailee (a) shall maintain continuous custody and control of the related Purchased Loan Files as bailee for the Buyer and (b) is holding the related Purchased Loan Loans as sole and exclusive bailee for the Buyer unless and until otherwise instructed in writing by the Buyer. 7. The Seller agrees to indemnify and hold the Bailee and its partners, directors, officers, agents and employees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including reasonable attorney's fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of this Bailee Agreement or any action taken or not taken by it or them hereunder unless such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (other than special, indirect, punitive or consequential damages, which shall in no event be paid by the Bailee) were imposed on, incurred by or asserted against the Bailee because of the breach by the Bailee of its obligations hereunder, which breach was caused by negligence, lack of good faith or willful misconduct on the part of the Bailee or any of its partners, directors, officers, agents or employees. The foregoing indemnification shall survive any resignation or removal of the Bailee or the termination or assignment of this Bailee Agreement. 8. (a) In the event that the Bailee fails to produce a Mortgage Note, Mezzanine Note, assignment of Purchased Loan or any other document related to a Purchased Loan that was in its possession within ten (10) business days after required or requested by the Seller or Buyer (a "Delivery Failure"), the Bailee shall indemnify the Seller or Buyer in accordance with the succeeding paragraph of this Section 8. (b) The Bailee agrees to indemnify and hold the Buyer and Seller, and their respective affiliates and designees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including reasonable attorney's fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of a Custodial Delivery Failure or the Bailee's negligence, lack of good faith or willful misconduct. The foregoing indemnification shall survive any termination or assignment of this Bailee Agreement. 9. The Seller hereby represents, warrants and covenants that the Bailee is not an affiliate of or otherwise controlled by the Seller. Notwithstanding the foregoing, the parties hereby acknowledge that the Bailee hereunder may act as Counsel to the Seller in connection with a proposed loan and Paul, Hastings, Janofsky & Walker LLP, if acting as Bailee, has represented the Seller in connection with negotiation, execution and delivery of the Repurchase Agreement. 10. In connection with a pledge of the Purchased Loans as collateral for an obligation of the Buyer, the Buyer may pledge its interest in the corresponding Purchased Loan Files held by the Bailee for the Exhibit VIII-3 benefit of the Buyer from time to time by delivering written notice to the Bailee that the Buyer has pledged its interest in the identified Purchased Loans and Purchased Loan Files, together with the identity of the party to whom the Purchased Loans have been pledged (such party, the "Pledgee"). Upon receipt of such notice from the Buyer, the Bailee shall mark its records to reflect the pledge of the Purchased Loans by the Buyer to the Pledgee. The Bailee's records shall reflect the pledge of the Purchased Loans by the Buyer to the Pledgee until such time as the Bailee receives written instructions from the Buyer that the Purchased Loans are no longer pledged by the Buyer to the Pledgee, at which time the Bailee shall change its records to reflect the release of the pledge of the Purchased Loans and that the Bailee is holding the Purchased Loans as custodian for, and for the benefit of, the Buyer. 11. From time to time, subject to the acceptance and approval of Buyer, Seller may request pursuant to a request substantially in the form of Annex 6 to the Custodial Agreement the delivery by the Custodian to the Bailee of some or all of the Purchased Loan File for the purposes set forth in such request. Upon receipt of the Purchased Loan File or such portions thereof, Bailee shall hold the same as sole and exclusive bailee for the Buyer until such time as the Purchased Loan File, or such portions thereof, are redelivered to Custodian or to such other Persons, as otherwise directed by Buyer, subject in either case to the provisions set forth herein governing standards of care and indemnification and except as otherwise provided by any document specifically amending, supplementing or modifying the terms hereof which is executed and delivered by all parties hereto in connection with such delivery of the Purchased Loan File, or such portions thereof, to Bailee. Notwithstanding anything to the contrary contained in this Section 11, Bailee shall have the right to deliver such Purchased Loan File, or portions thereof, to Buyer upon five (5) days written notice to Buyer. 12. The agreement set forth in this Bailee Agreement may not be modified, amended or altered, except by written instrument, executed by all of the parties hereto. 13. This Bailee Agreement may not be assigned by the Seller or the Bailee without the prior written consent of the Buyer. 14. For the purpose of facilitating the execution of this Bailee Agreement as herein provided and for other purposes, this Bailee Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute and be one and the same instrument. 15. This Bailee Agreement shall be construed in accordance with the laws of the State of New York, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. 16. Capitalized terms used herein and defined herein shall have the meanings ascribed to them in the Repurchase Agreement. [signatures begin on next page] Exhibit VIII-4 Very truly yours, CAPITAL TRUST, INC., a Maryland corporation By:___________________________ Name: Title: ACCEPTED AND AGREED: PAUL, HASTINGS, JANOFSKY & WALKER LLP, Bailee By:__________________________ Name: Title: ACCEPTED AND AGREED: GOLDMAN SACHS MORTGAGE COMPANY, Buyer By: Goldman Sachs Real Estate Funding Corp., its general partner By:__________________________ Name: Title: Exhibit VIII-5 Attachment 1 to Bailee Agreement IDENTIFICATION CERTIFICATE -------------------------- Exhibit VIII-6 Attachment 2 to Bailee Agreement TRUST RECEIPT ------------- Exhibit VIII-7 ANNEX II 1. Names and Addresses for Communications Between Parties: BUYER ----- Goldman Sachs Mortgage Company 85 Broad Street- 26th Floor New York, New York 10004 Attn: Marc L. Flamino Telephone: (212) 357-4727 Telecopier:(212) 902-1691 with a copy to: Cleary Gottlieb Steen & Hamilton One Liberty Plaza New York, New York 10006 Attn: Kimberly B. Blacklow Telephone: (212) 225-2018 Telecopier: (212) 225-3999 SELLER ------ Capital Trust, Inc. 410 Park Avenue, 14th Floor New York, NY 10022 Attn: Geoffrey Jervis Telephone: (212) 655-0247 Telecopier: (212) 655-0044 with a copy to: Paul Hastings Janofsky & Walker, LLP 75 East 55th Street New York, NY 10022 Attn: Robert J. Grados, Esq. Telephone: (212) 318-6923 Telecopier: (212) 230-7830 2. Payments to Buyer: Payments to Buyer under the Agreement shall be made by transfer, via wire transfer, to the following account of the Buyer: Citibank, N.A., ABA #: 021000089, Account #: 40711421, Account Name: Goldman Sachs Mortgage Company, Ref: Capital Trust, Inc., Exhibit VIII-1 Attention: John Makrinos and Mike Forbes. Buyer may consider on a case-by-case-basis in its sole and absolute discretion alternative funding arrangements. 3. Payments to Seller: Payments to Seller under the Agreement shall be made by transfer, via wire transfer, to the following account of the Seller: JP Morgan Chase Bank, 380 Madison Avenue, 11th Floor, New York, NY 10017-2591, ABA #: 021-000021, Account #:230254632, Account Name: Capital Trust, Inc., Attention: Brian H. Oswald, (212) 655-0256 Exhibit VIII-2 EX-10 5 ex10-3.txt EX. 10.3 - 1ST AM. TO MASTER REPURCHASE AG Exhibit 10.3 FIRST AMENDMENT TO MASTER REPURCHASE AGREEMENT FIRST AMENDMENT TO MASTER REPURCHASE AGREEMENT, dated as of August 26, 2003 (this "Amendment"), to the Master Repurchase Agreement, dated as of May 28, 2003 (the "Repurchase Agreement"), by and between Goldman Sachs Mortgage Company, as a buyer ("GSMC") and Capital Trust, Inc., as seller ("Seller"). Commerzbank AG, New York Branch ("Commerzbank") is executing this Amendment as a buyer under the Repurchase Agreement pursuant to the assignment of the Undivided Interest (as defined below) by GSMC to Commerzbank in the Purchased Loans and the Transaction Documents. In addition, Goldman Sachs Mortgage Company is executing this Amendment as administrative agent (in such capacity, and together with its successors and permitted assigns in such capacity, the "Administrative Agent"). Capitalized terms used but not defined herein shall have the meanings set forth in the Repurchase Agreement. RECITAL ------- WHEREAS, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties have agreed to increase the Facility Amount under the Repurchase Agreement; WHEREAS, as of the date hereof, GSMC has assigned a 50% undivided interest (the "Undivided Interest") in the Purchased Loans acquired to date and in the Transaction Documents and all rights and obligations thereunder to Commerzbank AG, New York Branch ("Commerzbank"); and WHEREAS, the parties have agreed to amend the Transaction Documents to provide for the increase in the Facility Amount and to provide for the express recognition by Seller of Commerzbank's rights and obligations as a Buyer under the Transaction Documents. NOW, THEREFORE, IT IS AGREED AS FOLLOWS: 1. Facility Amount. The definition of "Facility Amount" in Section 2(c) of Annex I to the Repurchase Agreement is hereby deleted in its entirety and replaced with the following: "`Facility Amount' means $100,000,000." 2. Other Amendments. (a) Definition of Administrative Agent. The following definition of "Administrative Agent" is added to Section 2(c) of Annex I to the Repurchase Agreement (in the appropriate alphabetical order): "'Administrative Agent' means Goldman Sachs Mortgage Company, as Administrative Agent under the Agreement and the other Transaction Documents or any successor or permitted assign appointed in such capacity." (b) Preliminary Due Diligence Package: The definition of the defined term "Preliminary Due Diligence Package" set forth in Section 2(c) of Annex I to the Repurchase Agreement is hereby amended as follows: Subclauses (xi) through (xv) of the definition of "Preliminary Due Diligence Package" are hereby renumbered as subclauses (x) through (xiv). The reference to "and (x)" in the renumbered subclause (xiii) is hereby deleted. (c) Diligence Fee: The parenthetical "(not to exceed $35,000 annually)" in the definition "Diligence Fee" set forth in Section 2(c) of Annex I to the Repurchase Agreement is hereby deleted. (d) Eligible Loans: The parenthetical "(other than conduit loans)" is hereby added in subclause (ii) of the defined term "Eligible Loans" set forth in Section 2(c) of Annex I to the Repurchase Agreement after the words "performing Mortgage Loans." (e) Section 3(b): Section 3(b) of Annex I to the Repurchase Agreement is hereby replaced by the following: "(b) Upon Buyer's receipt of a complete Preliminary Due Diligence Package with respect to a proposed Transaction, Buyer shall have the right within five (5) Business Days, to request in a Supplemental Due Diligence List such additional Diligence Materials and deliveries that Buyer deems necessary to properly evaluate the New Loans. Buyer's failure to respond to Seller shall be deemed to be a denial of Seller's request to enter into the proposed Transaction, unless Buyer and Seller have agreed otherwise in writing. Notwithstanding anything to the contrary herein, Buyer may deny, in Buyer's sole and absolute discretion, Seller's request for a Transaction at any time prior to the issuance of a Confirmation irrespective of Buyer's request for additional Diligence Materials." (f) Section 3(c): The words "Upon Seller's receipt of Buyer's Preliminary Approval with respect to a Transaction," are hereby deleted from the first sentence of Section 3(c) of Annex I to the Repurchase Agreement. (g) Section 3(e)(8): The reference to 40% in Section 3(e)(8) of Annex I to the Repurchase Agreement is hereby changed to read "30%". (h) Section 5(a): The reference to "Section 5(c)" in the last sentence of Section 5(a) of the Repurchase Agreement is changed to "Section 5(d)". (i) Section 14(a)(iii): The words "and 6(d)" are deleted in subclause (iii)(A) and in subclause (iii)(B) of Section 14(a). 3. Assignment of Transaction Documents. (a) Pursuant to Section 17(a) of Annex I to the Repurchase Agreement, GSMC has assigned the Undivided Interest in the 2 Transaction Documents and the Purchased Loans to Commerzbank and Seller hereby acknowledges such assignment and agrees, except as otherwise provided in Sections 3(b), 3(c) and 5 hereof, to recognize Commerzbank as a Buyer under the Transaction Documents with the same rights and obligations as GSMC thereunder. With respect to any New Loan for which a Confirmation shall have been issued, each Buyer shall be obligated to fund only its pro-rata share (based on its percentage of Undivided Interest in the Transaction Documents) of the Purchase Price for such New Loan and, notwithstanding anything to the contrary herein, shall not be obligated to fund the other Buyer's pro-rata share of the Purchase Price. (b) Except as otherwise provided in this Section 3(b) and in Sections 3(c) and 5 hereof, from and after the date hereof, the term "Buyer" shall be deemed to refer to both GSMC and Commerzbank, together with their respective successors and assigns. References to "Buyer" in the second paragraph of Section 17(a) of Annex I to the Repurchase Agreement shall continue to refer only to GSMC, irrespective of the assignment of the Undivided Interest to Commerzbank; provided, however, Seller acknowledges and agrees that GSMC shall be acting in its capacity as Administrative Agent on behalf of the Buyer in accordance with Paragraph 4 hereof, and may be obligated to consent, withhold its consent or otherwise take any action hereunder upon the direction or with the consent or concurrence of the Buyer pursuant to a separate agreement between GSMC and Commerzbank, each as a Buyer and GSMC, as Administrative Agent. (c) Notwithstanding anything to the contrary herein but without in any way limiting any indemnity set forth in the Transaction Documents from Seller to any Buyer, prior to an Event of Default, Seller shall not be responsible for any incremental costs arising solely as a result of more than one Buyer holding an interest in the Purchased Loans. For the avoidance of doubt, in connection with the purchase of any New Loan by Buyer, Seller shall be responsible for amounts relating to legal fees and disbursements payable to a single law firm only. (d) If either Buyer further assigns or participates its interest in the Transaction Documents or any Purchased Loan, Seller shall not be obligated to pay any fees or costs relating thereto, unless such assignment results in an increase in the Facility Amount or is otherwise at the request of Seller. (e) Seller hereby acknowledges and agrees that Commerzbank is a Permitted Transferee. 4. Administrative Agent. (a) Each Buyer hereby appoints and designates GSMC as Administrative Agent, and each Buyer hereby authorizes Administrative Agent to take such action on its behalf under the provisions of the Repurchase Agreement and each other Transaction Document and to exercise such powers and perform such duties on behalf of each Buyer as are expressly delegated to it by the terms of the Repurchase Agreement or any other Transaction Document, together with such powers as are reasonably incidental thereto. (b) Administrative Agent may execute any of its respective duties under the Repurchase Agreement or any other Transaction Document or with respect to the Purchased Loans by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Administrative Agent shall not be 3 responsible to any Buyer or the Seller for the negligence or misconduct of any agent, employee or attorney-in-fact that it selects with reasonable care. (c ) Neither Administrative Agent, its Affiliates, nor their respective officers, directors, employees, agents, or attorneys-in-fact (all of the foregoing being collectively referred to as the "Agent-Related Persons") shall be liable to Seller or any Buyer for any action taken or omitted to be taken by any of them under or in connection with this Agreement, the Purchased Loans or any other Transaction Document (except for its own gross negligence or willful misconduct). 5. Security Interest. GSMC has assigned to Administrative Agent for the benefit of each Buyer all pledges and security interests made and granted by Seller to GSMC pursuant to the Repurchase Agreement and the other Transaction Documents (the "Pledges and Security Interests") as security for obligations of Seller under Transactions (that are deemed to be loans). In order to give effect to such assignment, (a) Sections 6(a) and 6(b) of, and Schedules 7-A and 7-B to, Annex I to the Repurchase Agreement are amended by substituting for the word "Buyer" each time such word appears therein the words "Administrative Agent for the benefit of each Buyer", (b) all references in the Repurchase Agreement and the other Transaction Documents to Buyer as pledgee or secured party with respect to any Pledges and Security Interests (including, without limitation, in Sections 7(b), 14(a) and 26(b) of Annex I to the Repurchase Agreement) shall be deemed to be references to Administrative Agent as such pledgee or secured party, and (c) all rights and remedies of the secured party with respect to the Pledges and Security Interests shall be exercisable by Administrative Agent for the benefit of each Buyer (subject, however, to the proviso to the last sentence of Section 3(b) hereof). 6. Annex II; Notices; Payments. (a) Notices to Administrative Agent shall be sent to the names and addresses for GSMC as set forth in Annex II. The following names and addresses are added to Annex II of the Repurchase Agreement under notices for Buyer: Commerzbank AG, New York Branch 2 World Financial Center 34th Floor New York, NY 10281 Attention: Anthony J. Tuffy Telecopy: 212-266-7565 with a copy to: Dechert 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 Attention: David W. Forti, Esq. Telecopy: 215-994-2222 4 (b) Seller agrees to send to Commerzbank copies of all notices delivered to GSMC, as Buyer, under the Transaction Documents, provided, however, the failure by Seller to provide such notices to Commerzbank shall not constitute an Event of Default. (c) All payments to Buyer (i.e., as of the date hereof, both GSMC and Commerzbank) under the Repurchase Agreement shall continue to be made to the account specified in Annex II to the Repurchase Agreement. 7. Continuing Effect. Except as expressly amended by this Amendment, the Repurchase Agreement and the other Transaction Documents remain in full force and effect in accordance with their respective terms, and are hereby in all respects ratified and confirmed. 8. References to Repurchase Agreement. All references to the Repurchase Agreement in any Transaction Document or in any other document executed or delivered in connection therewith shall, from and after the execution and delivery of this Amendment, be deemed a reference to the Repurchase Agreement as amended hereby, unless the context expressly requires otherwise. 9. Governing Law. This Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of New York. 10. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in their names as of the date first above written. GOLDMAN SACHS MORTGAGE COMPANY, as a Buyer By: Goldman Sachs Real Estate Funding Corp. By: /s/ Daniel Sparks Name: Daniel Sparks Title: Vice President GOLDMAN SACHS MORTGAGE COMPANY, as Administrative Agent By: Goldman Sachs Real Estate Funding Corp. By: /s/ Daniel Sparks Name: Daniel Sparks Title: Vice President COMMERZBANK AG, NEW YORK BRANCH, as a Buyer By:/s/ Anthony Tuffy Name: Anthony Tuffy Title: Senior Vice President By:/s/ Michael Zanolli Name: Michael Zanolli Title: Senior Vice President 6 CAPITAL TRUST, INC., as Seller By: /s/ Brian H. Oswald Name: Brian H. Oswald Title: Chief Financial Officer 7 EX-10 6 ex10-4.txt EX. 10.4 - AM'D & REST. MASTER LSA Exhibit 10.4 EXECUTION ================================================================================ AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT FOR A CREDIT FACILITY IN AN AMOUNT UP TO $150,000,000 Dated as of June 27, 2003 CAPITAL TRUST, INC. and CT MEZZANINE PARTNERS I LLC as Borrowers and MORGAN STANLEY MORTGAGE CAPITAL INC. as Lender
TABLE OF CONTENTS Page RECITALS 1 Section 1. Definitions and Accounting Matters...........................................2 1.01 Certain Defined Terms........................................................2 1.02 Accounting Terms and Determinations.........................................14 Section 2. Loans, Note and Prepayments.................................................14 2.01 Loans.......................................................................14 2.02 Notes.......................................................................14 2.03 Procedures for Borrowing....................................................14 2.04 Mandatory Prepayments or Pledge.............................................18 Section 3. Payments; Computations; Etc.................................................19 3.01 Repayment of Loans; Interest................................................19 3.02 Payments....................................................................20 3.03 Computations................................................................21 3.04 U.S. Taxes..................................................................21 3.05 Booking of Loans............................................................21 3.06 Lender's Funding of Eurodollar Rate Loans...................................21 3.07 Funding Costs...............................................................22 3.08 Compensation for Increased Costs............................................22 3.09 Limitation on Types of Loans; Illegality....................................23 Section 4. Collateral Security.........................................................23 4.01 Collateral; Security Interest...............................................23 4.02 Further Assurances..........................................................24 4.03 Changes in Locations, Name, etc.............................................25 4.04 Lender's Appointment as Attorney-in-Fact....................................25 4.05 Performance by Lender of Borrowers' Obligations.............................26 4.06 Proceeds....................................................................26 4.07 Remedies....................................................................26 4.08 Limitation on Duties Regarding Preservation of Collateral...................27 4.09 Powers Coupled with an Interest.............................................27 4.10 Release of Security Interest................................................27 4.11 Release of Collateral.......................................................27 4.12 Substitution of Eligible Collateral.........................................27 Section 5. Conditions Precedent........................................................28 5.01 Initial Loan................................................................28
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TABLE OF CONTENTS Page 5.02 Initial and Subsequent Loans................................................29 5.03 Additional Requirements.....................................................30 Section 6. Representations and Warranties..............................................31 6.01 Existence...................................................................31 6.02 Action......................................................................31 6.03 Financial Condition.........................................................31 6.04 Litigation..................................................................32 6.05 No Breach...................................................................32 6.06 Approvals...................................................................32 6.07 Use of Proceeds; Margin Regulations.........................................32 6.08 Taxes.......................................................................32 6.09 Investment Company Act......................................................32 6.10 Collateral; Collateral Security.............................................32 6.11 Chief Executive Office......................................................34 6.12 Location of Books and Records...............................................34 6.13 True and Complete Disclosure................................................34 6.14 Tangible Net Worth..........................................................34 6.15 ERISA.......................................................................34 Section 7. Covenants of Borrowers......................................................34 7.01 Financial Statements, Reports, etc..........................................34 7.02 Litigation..................................................................35 7.03 Existence, etc..............................................................35 7.04 Prohibition of Fundamental Changes..........................................36 7.05 Borrowing Base Deficiency...................................................36 7.06 Notices.....................................................................36 7.07 Reports.....................................................................37 7.08 Transactions with Affiliates................................................37 7.09 Foreclosure or Other Remediation by Borrowers...............................37 7.10 Limitation on Liens.........................................................37 7.11 Limitation on Distributions.................................................37 7.12 Maintenance of Tangible Net Worth...........................................37 7.13 Maintenance of Ratio of Earnings Before Interest, Taxes, Depreciation and Amortization to Interest and Preferred Dividends............................37 7.14 Maintenance of Ratio of Total Indebtedness to Tangible Net Worth............38 7.15 Servicer; Servicing Tape....................................................38
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TABLE OF CONTENTS Page 7.16 Remittance of Prepayments...................................................38 Section 8. Events of Default...........................................................38 Section 9. Remedies Upon Default.......................................................40 Section 10. No Duty of Lender...........................................................40 Section 11. Miscellaneous...............................................................40 11.01 Waiver......................................................................40 11.02 Notices.....................................................................40 11.03 Indemnification and Expenses................................................41 11.04 Amendments..................................................................41 11.05 Successors and Assigns......................................................41 11.06 Survival....................................................................41 11.07 Captions....................................................................42 11.08 Counterparts................................................................42 11.09 Loan Agreement Constitutes Security Agreement; Governing Law................42 11.10 SUBMISSION TO JURISDICTION; WAIVERS.........................................42 11.11 WAIVER OF JURY TRIAL........................................................42 11.12 Acknowledgments.............................................................43 11.13 Hypothecation or Pledge of Loans............................................43 11.14 Servicing...................................................................43 11.15 Periodic Due Diligence Review...............................................44 11.16 Intent......................................................................44 11.17 Change of Borrowers' States of Formation....................................44 11.18 Set-Off.....................................................................44 11.19 Special Purpose Entity......................................................45 11.20 Joint and Several Liability.................................................45 11.21 Morgan Stanley Downgrade....................................................45
-iii- TABLE OF CONTENTS SCHEDULES - --------- SCHEDULE 1 Filing Jurisdictions and Offices SCHEDULE 2 Approved Appraisers SCHEDULE 3 Approved Engineers SCHEDULE 4 Approved Environmental Consultants SCHEDULE 5 Existing CT Collateral SCHEDULE 6 Existing Fund I Collateral EXHIBITS - -------- EXHIBIT A Form of Third Amended and Restated Promissory Note EXHIBIT B Form of Custodial Agreement EXHIBIT C Form of Opinion of Counsel to Borrowers EXHIBIT D Form of Request for Borrowing EXHIBIT E Form of Lender's Release Letter EXHIBIT F Form of Bailee Agreement -iv- AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT, dated as of June 27, 2003, between CAPITAL TRUST, INC., a Maryland corporation ("CT"), CT MEZZANINE PARTNERS I LLC, a Delaware limited liability company ("Fund I") (CT and Fund I are sometimes collectively referred to herein as "Borrowers" and individually, as the context requires, as a "Borrower") and MORGAN STANLEY MORTGAGE CAPITAL INC., a New York corporation ("Lender"). RECITALS WHEREAS, Lender and CT are parties to that certain Amended and Restated Master Loan and Security Agreement dated as of February 8, 2001 (as amended to date, the "CT MLSA"), pursuant to which CT has requested that Lender from time to time make revolving credit loans to CT to finance certain conduit loans, multifamily and commercial mortgage loans, mezzanine loans, equity interests and other approved collateral owned by CT, and Lender has agreed to make such loans pursuant to the terms of the CT MLSA. In addition, CT has requested that Lender from time to time make revolving credit loans to CT to finance certain commercial mortgage-backed securities owned by CT, and Lender has agreed to make such loans pursuant to the terms of that certain Amended and Restated CMBS Loan Agreement dated as of February 8, 2001 between Morgan Stanley & Co. International Limited ("MSIL") and CT (as amended to date, the "CT CMBSLA"); WHEREAS, Lender and Fund I are parties to that certain Master Loan and Security Agreement dated as of September 19, 2000 (as amended to date, the "Fund I MLSA"), pursuant to which Fund I has requested that Lender from time to time make revolving credit loans to Fund I to finance certain conduit loans, multifamily and commercial mortgage loans, mezzanine loans, equity interests and other approved collateral owned by Fund I, and Lender has agreed to make such loans pursuant to the terms of the Fund I MLSA. In addition, Fund I has requested that Lender from time to time make revolving credit loans to Fund I to finance certain commercial mortgage-backed securities owned by Fund I, and Lender has agreed to make such loans pursuant to the terms of that certain CMBS Loan Agreement dated as of September 19, 2000, between MSIL and Fund I (as amended to date, the "Fund I CMBSLA"); WHEREAS, pursuant to the terms of the CT MLSA, Lender has made certain revolving credit loans to CT and, as security therefor, has accepted from CT certain pledges of approved collateral as set forth on Schedule 5 hereto (the "Existing CT Collateral"); WHEREAS, pursuant to the terms of the Fund I MLSA, Lender has made certain revolving credit loans to Fund I and, as security therefor, has accepted from Fund I certain pledges of approved collateral as set forth on Schedule 6 hereto (the "Existing Fund I Collateral"); WHEREAS, Fund I is indirectly a wholly-owned subsidiary of CT, and CT, Lender and MSIL have determined that it will be beneficial to CT and Fund I if the rights and obligations of the parties under the Fund I MLSA, the Fund I CMBSLA and the CT CMBSLA and all promissory notes, guaranties, custodial agreements, servicing agreements and other instruments related thereto, were to be consolidated with the rights and obligations of the parties under, and set forth and described in, the CT MLSA, and accordingly, CT, Fund I and Lender have determined that to effectuate the foregoing, the parties will, pursuant to this Agreement, consolidate, amend and restate the CT MLSA , Fund I MLSA, CT CMBSLA and Fund I CMBSLA (collectively, the "Original Loan Agreements") and all promissory notes, guaranties, custodial agreements, servicing agreements and other instruments related thereto, for the purpose of consolidating the obligations of CT and Fund I as jointly and severally liable borrowers thereunder and confirming that the Existing CT Collateral and the Existing Fund I Collateral shall continue to constitute Collateral (as defined below) hereunder, and to make certain other agreements as more particularly set forth herein; WHEREAS, Borrowers have requested that Lender from time to time make additional revolving credit loans to them to finance certain conduit loans, multifamily and commercial mortgage loans, mezzanine loans, Equity Interests, B Notes (each as defined below) and other approved collateral owned by either Borrower, and Lender is prepared to make such loans upon the terms and conditions hereof. In addition, Borrowers have requested that Lender from time to time make additional revolving credit loans to them to finance certain commercial mortgage-backed securities owned by either Borrower, and Lender is prepared to make such loans pursuant to the terms and conditions hereof; WHEREAS, Borrowers and Lender desire that the Existing CT Collateral and the Existing Fund I Collateral shall continue to constitute Collateral hereunder without any instruments of assignment being required; WHEREAS, Borrowers and Lender understand that Borrowers may enter into loan facilities with other parties on a secured and unsecured basis, including, without limitation, loans secured by collateral similar to the Collateral hereunder; WHEREAS, Borrowers and Lender desire to consolidate, amend and restate the Original Loan Agreements in their entireties to incorporate their mutual agreements with respect thereto; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree that the Original Loan Agreements are hereby consolidated, amended and restated in their entireties as follows: Section 1. Definitions and Accounting Matters. 1.01 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Loan Agreement in the singular will have the same meanings when used in the plural and vice versa): "Advance Rate" means, for any item of Eligible Collateral, the ratio, expressed as a percentage, set forth opposite the collateral type in the chart provided in the definition of Eurodollar Rate Spread or as otherwise defined or limited herein. "Affiliate" shall mean (i) with respect to Lender, any entity which controls, is controlled by, or is under common control with Lender, and (ii) with respect to either Borrower, any affiliate of such Borrower as such term is defined in the Bankruptcy Code. "Amortization Period" shall mean, if the Termination Date shall be extended in accordance with the terms hereof, the period from and after July 16, 2005 through and including April 15, 2006. "Appraisal" means an appraisal of any Property prepared by a licensed appraiser listed on Schedule 3 attached hereto, as such schedule may be amended from time to time by Borrowers or Lender upon approval by Lender in its reasonable discretion, in accordance with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation, in compliance with the requirements of Title 11 of the Financial Institution Reform, Recovery and Enforcement Act and utilizing customary valuation methods such as the income, sales/market or cost approaches, as any of the same may be updated by recertification from time to time by the appraiser performing such Appraisal. "Asset-Specific Loan Balance" means a portion of the Loan allocable to each item of the Eligible Collateral. Such portion initially consists of the sum of all advances of the Loan made on account of such Eligible Collateral, without subtracting from such advances Lender's Transaction Costs and other advance costs and fees to the extent borrowed by either Borrower hereunder. Wherever this Loan Agreement states that principal payments on account of the Loan are to be allocated or applied to or against the Asset-Specific Loan Balance of a specific item of Eligible Collateral, the Asset-Specific Loan Balance of such item of Eligible Collateral shall be deemed reduced accordingly by the amount of the principal payments so applied. -2- "Asset Value" shall mean, as of any date in respect of an item of Eligible Collateral, the price at which such Eligible Collateral could readily be sold as determined in the sole good faith of Lender, which price may be determined to be zero. Lender's determination of Asset Value, which may be made at any time and from time to time, shall be conclusive upon the parties. Whenever an Asset Value determination is required under this Loan Agreement, the applicable Borrower shall cooperate with Lender in its determination of the Asset Value of each item of Eligible Collateral (including, without limitation, providing all information and documentation in the possession of such Borrower regarding such item of Eligible Collateral or otherwise required by Lender in its sole good faith business discretion). "B Note" shall mean the original executed subordinated promissory note or other evidence of a subordinated participation interest owned by either Borrower with respect to a mezzanine loan or mortgage loan. "Bailee" shall mean Paul, Hastings, Janofsky & Walker LLP or such other third party as Lender may approve. "Bailee Agreement" shall mean the Bailee Agreement among Borrowers, Lender and Bailee in the form of Exhibit F hereto. "Bailee's Trust Receipt and Certification" shall mean a Trust Receipt and Certification in the form annexed to the Bailee Agreement as Attachment 2. "Bankruptcy Code" shall mean the United States Bankruptcy Reform Act of 1978, as amended from time to time. "Base Rate" means, as determined by Lender on a daily basis, the higher of (a) the rate per annum established by The Chase Manhattan Bank from time to time as its "Prime" Rate or "reference" rate (which Borrowers acknowledge is not necessarily such bank's lowest rate) and (b) one-half percentage point (0.5%) (50 basis points) over the Federal funds rate, as determined by Lender in its sole discretion. "Borrowers" shall have the meaning provided in the heading hereof. "Borrowing Base" shall mean the aggregate Collateral Value of all Eligible Collateral pledged to secure the amounts from time to time outstanding under this Loan Agreement. "Borrowing Base Deficiency" shall have the meaning provided in Section 2.04 hereof. "Business Day" shall mean any day other than (i) a Saturday or Sunday or (ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of New York or Custodian is authorized or obligated by law or executive order to be closed. "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Loan Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CMBS" shall mean, in the singular or plural as the context requires, securities backed by mortgages and other liens on commercial real estate and related collateral or by securities, interests or other obligations backed directly or indirectly by such mortgages. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall have the meaning provided in Section 4.01(b) hereof. -3- "Collateral Assignment" shall mean all documents pursuant to which either Borrower shall have collaterally assigned all of its right, title and interest in, to and under an item of Collateral to secure a Loan made hereunder. "Collateral Documents" shall mean with respect to any Collateral Loan, B Note, Equity Interest, or Other Approved Collateral, the documents comprising the Collateral File for such item of Collateral. "Collateral File" shall mean, as to each item of Collateral, those documents set forth in a schedule to be delivered by Lender to Custodian and which are delivered to the Custodian pursuant to the terms of this Loan Agreement or the Custodial Agreement including, without limitation, all documents required by Lender to grant and perfect a first priority security interest in such item of Collateral. "Collateral Loan" shall mean, as applicable, a Mortgage Loan or a Mezzanine Loan. "Collateral Obligor" shall mean any obligor under any Collateral Loan or B Note, any issuer of any security comprising any portion of the Collateral and any entity in which an Equity Interest comprises any portion of the Collateral. "Collateral Report" shall mean the collateral schedule and exception report prepared by Custodian pursuant to the Custodial Agreement. "Collateral Schedule" shall mean a list of Eligible Collateral to be pledged pursuant to this Loan Agreement, attached to a Custodial Identification Certificate setting forth, as to each item of Eligible Collateral, the applicable information for such Collateral Type specified on Annex 1 to the Custodial Agreement. "Collateral Type" shall mean a Mortgage Loan, Mezzanine Loan, B Note, CMBS, Equity Interest and Other Approved Collateral. "Collateral Value" shall mean, with respect to each item of Eligible Collateral, the Asset Value of such Eligible Collateral multiplied by the applicable Advance Rate set forth in the definition of "Eurodollar Rate Spread" set forth herein or as otherwise defined or limited herein; provided, that, the Collateral Value shall be deemed to be zero or such greater amount as determined by Lender in respect of each item of Eligible Collateral (1) in respect of which there is a breach of a representation or warranty by a Collateral Obligor, (2) in respect of which there is a delinquency in the payment of principal and/or interest which continues for a period in excess of 30 days (such period to include any applicable grace periods) unless otherwise approved by Lender, or (3) which has been released from the possession of Custodian under the Custodial Agreement to the applicable Borrower for a period in excess of that permitted pursuant to the terms of the Custodial Agreement. "Collection Account" shall mean one or more accounts established by the Servicer subject to a security interest in favor of Lender, into which all Collections shall be deposited by the Servicer. "Collections" shall mean, collectively, all collections and proceeds on or in respect of the Collateral, excluding collections required to be paid to the Servicer or a borrower on the Collateral. "Conduit Loan" shall mean a Mortgage Loan, secured by a first mortgage on a real property, that in Lender's determination, satisfies the following criteria: (i) principal balance not exceeding $40,000,000; (ii) interest at a fixed rate with prepayment protection satisfactory to Lender; (iii) single-asset, bankruptcy remote property owner complying with all nationally recognized statistical rating agency requirements; (iv) no subordinate financing and mortgage and organizational documents prohibiting subordinate financing or unsecured financing not otherwise subject to intercreditor agreements satisfactory to rating agencies; (v) debt service coverage ratio (as determined by Lender in its sole discretion) of not less than 1.25:1 or such higher debt service coverage ratio as may be required by rating agencies; (vi) not having any characteristics that would impair the rating of any securities issued -4- pursuant to a securitization that included a substantial component of mortgages similar to such mortgage; and (vii) in full compliance with such other "conduit" underwriting and structuring requirements as Lender shall establish from time to time. "control" shall mean possession of the power, directly or indirectly, to (a) vote more than fifty percent (50%) of the voting securities having ordinary power for the election of directors of an entity, or (b) direct or cause the direction of the management and policies of such entity, whether by contract or otherwise. "CT" shall mean Capital Trust, Inc., a Maryland corporation and the sole member of CT-F1. "CT-F1" shall mean CT-F1, LLC, a Delaware limited liability company and the sole member of Fund I. "Custodial Agreement" shall mean the Amended and Restated Custodial Agreement, dated as of the date hereof, among Borrowers, Custodian and Lender, substantially in the form of Exhibit B hereto, as the same shall be modified and supplemented and in effect from time to time. "Custodial Identification Certificate" shall mean the certificate executed by the applicable Borrower in connection with the pledge of Eligible Collateral to Lender in the form of Annex 3 to the Custodial Agreement. "Custodian" shall mean Deutsche Bank Trust Company Americas as custodian under the Custodial Agreement, and its successors and permitted assigns thereunder. "Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "Diligence Materials" means the Preliminary Due Diligence Package together with the materials requested in the Supplemental Due Diligence List. "Direct Mortgage" means a recorded mortgage or deed of trust in favor of Lender on real property. "Dollars" and "$" shall mean lawful money of the United States of America. "Due Diligence Review" shall mean the performance by Lender of any or all of the reviews permitted under Section 11.15 hereof with respect to any or all of the Collateral, as desired by Lender from time to time. "Effective Date" shall mean the date upon which the conditions precedent set forth in Section 5.01 shall have been satisfied. "Eligible Collateral" shall mean Mortgage Loans, Mezzanine Loans, B Notes, Equity Interests and Other Approved Collateral as to which the representations and warranties in Section 6.10 hereof are correct. "Equity Interest" shall mean any interest in a Person constituting a share of stock or a partnership or membership interest (including, without limitation, a preferred equity interest) or other right or interest in a Person that is not characterized as indebtedness under GAAP. "Equity Proceeds" shall mean the gross proceeds raised by CT from any offering of equity capital of CT less the reasonable and customary costs incurred by CT in connection with any such offering. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. -5- "ERISA Affiliate" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which either Borrower is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which either Borrower is a member. "Eurocurrency Reserve Requirements" shall mean, for any day as applied to a Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including without limitation basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto), dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such Governmental Authority. "Eurodollar Base Rate" shall mean, with respect to any Eurodollar Contract Period, the rate per annum equal to the rate appearing at page 3750 of the Telerate Screen as 30, 60 or 90 day LIBOR on the second Business Day prior to the commencement of any Eurodollar Contract Period, and if such rate shall not be so quoted, the rate per annum at which Lender is offered Dollar deposits at or about 10:00 A.M., New York City time, on such date by prime banks in the interbank eurodollar market where the eurodollar and foreign currency exchange operations in respect of its Loans are then being conducted for delivery on such day for a period of 30 days and in an amount comparable to the amount of the Loans to be outstanding on such day. "Eurodollar Contract Period" means, with respect to each Loan, a period determined by CT from time to time on the first Business Day prior to the expiration of each prior Eurodollar Contract Period as the period for which a Eurodollar Base Rate shall be in effect, which period shall be thirty (30) days, sixty (60) days or ninety (90) days (or if CT shall make no determination, thirty (30) days) and the number of days in such period being subject to adjustment as follows: (a) in no event shall a Eurodollar Contract Period extend beyond the Termination Date; (b) each such period shall end on the day immediately preceding the Payment Date which occurs approximately thirty (30) days, sixty (60) days or ninety (90) days, as applicable, after the commencement of the period chosen by CT; and (c) the initial Eurodollar Contract Period with respect to each Asset-Specific Loan Balance shall commence on the related Funding Date and each succeeding Eurodollar Contract Period shall commence on the day on which the immediately preceding Eurodollar Contract Period shall expire. "Eurodollar Rate" shall mean, with respect to each day a Loan is outstanding, a rate per annum determined by Lender in its sole discretion in accordance with the following formula (rounded upwards to the nearest 1/100th of one percent), which rate as determined by Lender shall be conclusive absent manifest error by Lender: Eurodollar Base Rate ------------------------------------------ 1.00 minus Eurocurrency Reserve Requirements "Eurodollar Rate Spread" means (A) as to each Advance Rate the applicable Eurodollar Rate Spread set forth below opposite such Advance Rate for the applicable Collateral type, or such other Eurodollar Rate Spread as may be mutually agreed to by Borrowers and Lender: -6-
- ---------------------------------------------------------------------------------------------------------- Eurodollar Rate Spread (expressed as percentage points Collateral Type Advance Rate per annum and as basis points) - ---------------------------------------------------------------------------------------------------------- Conduit Loan 90% 1.25% 125bp - ------------ - ---------------------------------------------------------------------------------------------------------- Non-Conduit Loans and Other Approved Collateral - ----------------------------------------------- (limited to 90% LTV maximum) First Mortgage Loans (75% LTV maximum) 85% 1.75% 175bp ------------------------------------------------------------------------------------------------ B Notes, subordinate Mortgage Loans, Mezzanine equal to or less 1.50% 150bp Loans, CMBS and Equity Interests (70% combined than 60% of the LTV maximum) Asset Value ------------------------------------------------------------------------------------------------ greater than 60% 1.75% 175bp but equal to or less than 75% of the Asset Value ------------------------------------------------------------------------------------------------ Subordinate Mortgage Loans, Mezzanine Loans, equal to or less 1.75% 175bp CMBS, B Notes and Equity Interests (between than 50% of the 71% and 85% combined LTV maximum, except Asset Value that Subordinate Mortgage Loans encumbering hotel and other hospitality industry properties and Mezzanine Loans secured by pledges of Equity Interests in entities owning such properties shall have a 70% combined LTV maximum)* ------------------------------------------------------------------------------------------------ greater than 50% 2.00% 200bp but less than 60% of the Asset Value ------------------------------------------------------------------------------------------------ equal to or 225% 225bps greater than 60% but equal to or less than 70% of the Asset Value - ----------------------------------------------------------------------------------------------------------
*Solely for illustrative purposes, Borrowers and Lender agree that the following example of a transaction illustrates their intent: with respect to an item of Collateral for which the appraised value of the underlying real property is $100,000,000, on which a First Mortgage Loan in the outstanding principal amount of $75,000,000 and a Mezzanine Loan in the outstanding principal amount of $10,000,000 have been made (for an aggregate amount of $85,000,000), with Lender advancing hereunder 85% of a 75% LTV on the First Mortgage Loan ($63,750,000), plus 70% of such Mezzanine Loan (70% of $10,000,000 equals $7,000,000), the aggregate loans from Lender to Borrowers would equal $70,750,000, resulting in a 83.24% underlying loan-to-loan value. In addition, Lender will finance loans originated by Borrowers with an aggregate underlying LTV up to 90% and above 90% on a case-by-case basis. and (B) notwithstanding anything set forth in clause (A) to the contrary, in the event the Termination Date shall be extended pursuant to the terms hereof, for the period from and after July 16, 2005 to, and including, the date the Loans are repaid in full, as to each Advance Rate the sum of (x) the applicable Eurodollar Rate Spread set forth opposite such Advance Rate for the applicable Collateral type in clause (A) above, plus (y) .25 percent, or 25 basis points, per annum. "Eurodollar Substitute Rate" means a rate of interest equal to (a) the Base Rate minus (b) Two and eighty-five hundredths percent (2.85%) per annum (285 basis points). "Event of Default" shall have the meaning provided in Section 8 hereof. "Federal Funds Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the -7- quotations for the day of such transactions received by Lender from three federal funds brokers of recognized standing selected by Lender. "Funding Costs" shall mean, collectively, the actual costs to Lender of breaking a Eurodollar contract (or costs that would have been incurred if Lender had entered into and broken a Eurodollar contract for a Eurodollar Contract Period as requested by a Borrower) prior to the expiration of the Eurodollar Contract Period applicable thereto in connection with (a) any prepayment (whether voluntary or involuntary) of all or any portion of an Asset-Specific Loan Balance or other principal repayments required or permitted under the Security Documents, that is made at any time other than at the expiration of the related Eurodollar Contract Period, (b) any voluntary or involuntary acceleration of the Termination Date, such that the Termination Date occurs on any date that is not the expiration date of the Eurodollar Contract Period with respect to any Asset-Specific Loan Balance, and (c) any other set of circumstances not attributable solely to Lender's acts. Subject to the foregoing, Funding Costs shall not include any diminution in yield suffered by Lender upon re-lending or re-investing the principal of the Loan after any prepayment of the Loan. "Funding Date" shall mean the date on which a Loan is made hereunder. "GAAP" shall mean generally accepted accounting principles consistently applied as in effect from time to time in the United States. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over any obligor on any underlying loan, Borrowers, any of their respective Subsidiaries or any of their properties. "Guarantee" shall mean, as to any Person, any obligation of such Person directly or indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise); provided that the term "Guarantee" shall not include (i) endorsements for collection or deposit in the ordinary course of business, or (ii) obligations to make servicing advances for delinquent taxes and insurance or other obligations in respect of a Mortgaged Property, to the extent required by Lender. The amount of any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have correlative meanings. "Indebtedness" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements or like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; and (i) Indebtedness of general partnerships of which such Person is a general partner. -8- "Interest Rate Protection Agreement" shall mean, with respect to any or all of the Mortgage Loans and Mezzanine Loans, any short sale of US Treasury Securities, or futures contract, or mortgage related security, or Eurodollar futures contract, or options related contract, or interest rate swap, cap or collar agreement or similar arrangements providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by any obligor on any underlying loan or either Borrower (specifically with respect to such items of Collateral) and acceptable to Lender. "Lender" shall have the meaning provided in the heading hereto. "Lien" shall mean any mortgage, lien, pledge, charge, encumbrance, security interest or adverse claim. "Loan" and "Loans" shall have the meanings provided in Section 2.01(a) hereof. "Loan Agreement" shall mean this Amended and Restated Master Loan and Security Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Loan Documents" shall mean, collectively, this Loan Agreement, the Note and the Custodial Agreement. "Loan-to-Value Ratio" or "LTV" shall mean, as to any Eligible Collateral, the ratio that (x) the aggregate outstanding principal balances of all loans (including Loans hereunder) and preferred equity interests secured in whole or in part by real property or direct or indirect beneficial interests therein relating to such Eligible Collateral bears to (y) the value, determined by an Appraisal reasonably acceptable to Lender, of the real property (together with all applicable appurtenant interests and subject to all applicable liens, encumbrances and tenancies), or direct or indirect beneficial interests which form the basis of such Eligible Collateral. "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition or prospects of Borrowers taken as a whole, (b) the ability of either Borrower to perform its obligations under any of the Loan Documents to which it is a party, (c) the validity or enforceability of any of the Loan Documents, (d) the rights and remedies of Lender under any of the Loan Documents, (e) the timely payment of the principal of or interest on the Loans or other amounts payable in connection therewith or (f) the aggregate value of the Collateral. "Maximum Advance Rate" shall mean, as to any item of Eligible Collateral, the maximum Advance Rate that shall be determined by Lender in Lender's sole and absolute discretion; provided, that, with respect to the specific categories of Eligible Collateral referred to in the definition of Eurodollar Rate Spread, the Maximum Advance Rate shall not exceed the respective Advance Rates set forth in such definition. "Maximum Credit" shall mean One Hundred Fifty Million Dollars ($150,000,000). "Mezzanine Loan" shall mean a loan secured by a pledge of Equity Interests in one or more entities holding direct or indirect beneficial interests in an entity owning (or having a ground lease interest in) a commercial or multi-family residential property, preferred equity interests or a second mortgage. "Minimum Usage Fee" shall mean, on any date of calculation, the positive amount, if any, equal to the product of (i) 175 basis points (1.75%) multiplied by either (ii) if said calculation relates to the October 1, 2003 through December 31, 2003 calendar quarter, (A) seventeen and one-half percent (17.50%) of the Maximum Credit minus (B) the daily average outstanding principal amount of Loans (including Loans made under the Original Loan Agreements), calculated over such calendar quarter, or (iii) if said calculation relates to any calendar quarter starting on or after January 1, 2004 (A) thirty-five percent (35%) of the Maximum Credit, minus (B) the daily average outstanding principal amount of Loans (including Loans made under the Original Loan Agreements), calculated over the calendar quarter -9- immediately preceding such date of calculation, in each case computed on the basis of a year of 360 days for the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which such fee is payable. "Monthly Statement" shall mean, for each calendar month during which this Loan Agreement shall be in effect, CT's reconciliation in arrears of beginning balances, interest, principal, paid-to-date and ending balances for each asset constituting the Collateral, together with (a) an Officer's Certificate with respect to all Collateral (whether of CT or of Fund I) pledged to Lender as at the end of such month, (b) a written report of any developments or events that are reasonably likely to have a Material Adverse Effect, (c) a written report of any and all written modifications to any documents underlying any items of Collateral and (d) such other internally prepared reports as mutually agreed by CT and Lender which reconciliation, Officer's Certificate and reports shall be delivered to Lender for each calendar month during the term of this Loan Agreement within ten (10) days following the end of each such calendar month. "Mortgage" shall mean the mortgage, deed of trust or other instrument securing a Mortgage Note, which creates a valid lien on the fee or leasehold interest in real property securing the Mortgage Note and the assignment of rents and leases related thereto. "Mortgage Loan" shall mean a mortgage loan (including, without limitation, a Conduit Loan) encumbering one or more commercial or multi-family residential properties which Custodian has been instructed to hold for Lender pursuant to the Custodial Agreement, and which Mortgage Loan includes, without limitation (i) the indebtedness evidenced by a Mortgage Note and secured by a related Mortgage, and (ii) all right, title and interest of the applicable Borrower in and to the Mortgaged Property covered by such Mortgage. "Mortgage Note" shall mean the original executed promissory note or other evidence of the indebtedness of a mortgagor with respect to a Mortgage Loan. "Mortgaged Property" shall mean the real property (including all improvements, buildings, fixtures, building equipment and personal property thereon and all additions, alterations and replacements made at any time with respect to the foregoing) and all other Collateral securing repayment of the debt evidenced by a Mortgage Note. "MS & Co." shall mean Morgan Stanley & Co. Incorporated, a registered broker-dealer. "MS Indebtedness" shall mean all Indebtedness from time to time owed by Borrowers to Lender or any Affiliate of Lender including, without limitation, under this Loan Agreement or any repurchase or other agreement between Lender, or an Affiliate of Lender, and either Borrower. "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been or are required to be made by either Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA. "'Non-Table' Funded Eligible Collateral" shall mean the items of Eligible Collateral as described in Section 2.03(e) of this Loan Agreement. "Note" shall mean the promissory note provided for by Section 2.02(a) hereof for the Loans and any promissory note delivered in substitution or exchange therefor, in each case as the same shall be modified, amended, supplemented or extended and in effect from time to time, including, without limitation, that certain Third Amended and Restated Promissory Note dated as of June 8, 1998 by Borrowers to Lender in the form attached hereto as Exhibit A, given in substitution for that certain Second Amended and Restated Promissory Note dated as of June 8, 1998 by CT to Lender. "Officer's Certificate" shall mean the certificate of a Responsible Officer as set forth in Section 5.02(b) hereof. -10- "Other Approved Collateral" shall mean such other Property of either Borrower as Lender shall accept as Collateral for the Loans. "Payment Date" shall mean, with respect to each Loan, the first Business Day of each calendar month following the related Funding Date. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, limited liability company, trust, unincorporated association or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean an employee benefit or other plan established or maintained by either Borrower or any ERISA Affiliate during the five-year period ended immediately before the date of this Loan Agreement or to which either Borrower or any ERISA Affiliate makes, is obligated to make or has, within the five-year period before the date of this Loan Agreement, been required to make contributions and that is covered Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code, other than a Multiemployer Plan. "Post-Default Rate" shall mean, in respect of any principal of any Loan or any other amount under this Loan Agreement, the Note or any other Loan Document that is not paid when due to Lender (whether at stated maturity, by acceleration, by optional or mandatory prepayment or otherwise), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 4% per annum plus the Base Rate. "Preliminary Due Diligence Package" means with respect to any proposed Collateral, the following due diligence information relating to such proposed Collateral to be provided by either Borrower to Lender pursuant to this Loan Agreement: (i) a summary memorandum outlining the proposed transaction, including potential transaction benefits and all material underwriting risks, all Underwriting Issues and all other characteristics of the proposed transaction that a prudent lender would consider material; (ii) current rent roll, if applicable; (iii) cash flow pro-forma, plus historical information, if available; (iv) description of the property (real property, pledged loan or other Collateral); (v) indicative debt service coverage ratios; (vi) indicative Loan-to-Value Ratio; (vii) the applicable Borrower's or any Affiliate's relationship with its potential underlying borrower or any affiliate; (viii) if applicable, Phase I environmental report (including asbestos and lead paint report); (ix) if applicable, engineering and structural reports; (x) third party reports, to the extent available and applicable, including: (a) current Appraisal; (b) Phase II or other follow-up environmental report if recommended in Phase I; -11- (c) seismic reports; and (d) operations and maintenance plan with respect to asbestos-containing materials; (xi) in the case of a B Note, all information which would otherwise be provided for the underlying Collateral Loan, and in addition, all documentation evidencing or otherwise relating to the B Note, including, without limitation, intercreditor agreements and participation agreements, as applicable; (xii) analyses and reports with respect to such other matters concerning the Collateral as Lender may in its sole discretion require; (xiii) documents comprising such Collateral, or current drafts thereof, including, without limitation, underlying debt and security documents, guaranties, underlying borrower's organizational documents, warrant agreements, and loan and collateral pledge agreements, as applicable; and (xiv) a list that specifically and expressly identifies any Collateral Documents that relate to such Collateral but are not in the applicable Borrower's possession. "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Regulations T, U and X" shall mean Regulations T, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "Responsible Officer" shall mean, as to any Person, the chief executive officer, any vice chairman and the chief financial officer of such Person or, for the purpose of executing certificates, the president, the vice president and counsel responsible therefor. "Secured Obligations" shall have the meaning provided in Section 4.01(a) hereof. "Security Documents" means this Loan Agreement, the Note, and all other agreements, instruments, certificates and documents delivered by or on behalf of Borrowers to evidence or secure the Loan(s) or otherwise in satisfaction of the requirements of this Loan Agreement, or the other documents listed above as same may be amended or modified from time to time. "Servicer" shall have the meaning provided in Section 11.14(c) hereof. "Servicing Agreement" shall have the meaning provided in Section 11.14(c) hereof. "Servicing Records" shall have the meaning provided in Section 11.14(b) hereof. "Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. Notwithstanding the foregoing, for purposes of Section 8 hereof only, a Subsidiary of CT shall only include a direct wholly-owned subsidiary of CT. "Supplemental Due Diligence List" means, with respect to any proposed Collateral, information or deliveries concerning such proposed Collateral, such items that Lender shall request in addition to the Preliminary Due Diligence Package including, without limitation, a credit approval -12- memorandum representing the final terms of the underlying transaction, a final LTV ratio computation and a final debt service coverage ratio computation for such proposed Collateral. "'Table Funded' Eligible Collateral" shall mean the items of Eligible Collateral as described in Section 2.03(e) of this Loan Agreement. "Tangible Net Worth" shall mean, as of a particular date, (a) all amounts which would be included under capital of CT and its consolidated Subsidiaries on a balance sheet of CT and its consolidated Subsidiaries at such date, determined in accordance with GAAP, less (b) intangible assets of CT and its consolidated Subsidiaries. "Termination Date" shall mean July 16, 2005 or such earlier date on which this Loan Agreement shall terminate in accordance with the provisions hereof or by operation of law; provided, however, that in the event that (i) this Agreement shall not have been earlier terminated and (ii) no Default shall have occurred and be continuing on July 16, 2005, the Termination Date shall be automatically extended to April 15, 2006. "Title Insurance Policy" shall mean, with respect to any real property underlying a Collateral Loan, a mortgagee's title insurance policy or policies issued to Lender and Lender's successors and assigns (or, subject to the prior written approval of Lender, an endorsement to the applicable Borrower's title insurance policy insuring the collateral assignment to Lender of the applicable mortgage) by one or more title companies reasonably satisfactory to Lender, which policy or policies shall be in form and substance reasonably acceptable to Lender, with such endorsements as Lender shall reasonably require and, with respect to any Collateral Loan, a mortgagee's title insurance policy or policies issued to Lender and Lender's successors and/or assigns by one or more title companies reasonably satisfactory to Lender reflecting Lender's interest in such Collateral Loan. "Total Indebtedness" shall mean, for any period, the aggregate Indebtedness of CT and its consolidated Subsidiaries during such period less the amount of any nonspecific balance sheet reserves maintained in accordance with GAAP. "Transaction Costs" shall mean, with respect to any Loan, all actual out-of-pocket reasonable costs and expenses paid or incurred by Lender and payable by Borrowers relating to the making of such Loan (including legal fees and other fees described in Section 11.03 hereof). Lender shall endeavor to limit the Transaction Costs associated with such Loan (excluding the initial Loan) to $5,000, but the foregoing shall not limit Borrowers' obligations with respect to Transaction Costs or constitute a "cap" on Transaction Costs for any Loan. Transaction Costs shall not include costs incurred by Lender for overhead and general administrative expenses. "Trust Receipt" shall mean the receipt delivered by Custodian pursuant to the provisions of Section 4 of the Custodial Agreement acknowledging receipt of a Collateral File in connection with a Loan hereunder in the form of Annex 2 to the Custodial Agreement. "Underwriting Issues" means with respect to any Collateral as to which either Borrower intends to request a Loan, all information that has come to such Borrower's attention, based on the making of reasonable inquiries and the exercise of reasonable care and diligence under the circumstances, which would be considered a materially "negative" factor (either separately or in the aggregate with other information), or a material defect in loan documentation or closing deliveries (such as any absence of any material Collateral Document(s)), to a reasonable institutional lender in determining whether to originate or acquire the Collateral in question. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform -13- Commercial Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. 1.02 Accounting Terms and Determinations. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to Lender hereunder shall be prepared, in accordance with GAAP. Section 2. Loans, Note and Prepayments. 2.01 Loans. (a) Lender agrees to consider, as provided herein, from time to time either Borrower's requests that Lender make, on the terms and conditions of this Loan Agreement, loans (each, individually, a "Loan" and, collectively, the "Loans") to such Borrower in Dollars, from and including the Effective Date to and including July 16, 2005, in an aggregate principal amount at any one time outstanding up to but not exceeding the Maximum Credit as in effect from time to time. Nothing in this Loan Agreement shall be interpreted as a commitment by Lender to make any Loans, but rather sets forth the procedures to be used in connection with periodic requests for Loans and the conditions to the making of any Loans. Borrowers hereby acknowledge that Lender is under no obligation to agree to make, or to make, any Loan pursuant to this Loan Agreement. (a) Subject to the terms and conditions of this Loan Agreement, during such period Borrowers may borrow, prepay and reborrow hereunder. 2.02 Notes. (a) The Loans made by Lender shall be evidenced by a single amended and restated promissory note of Borrowers substantially in the form of Exhibit A hereto, dated the date hereof, payable to Lender in the principal amount of One Hundred Fifty Million Dollars ($150,000,000), as otherwise duly completed. Lender shall have the right to have its Note subdivided, by exchange for promissory notes of lesser denominations or otherwise and shall have the right to sell participating interests in such Note; provided, however, that Lender must retain (i) in excess of fifty percent (50%) ownership interest in the Note and (ii) have control over all decisions with respect to loan pricing and the exercise of remedies with respect to each item of Collateral; and provided, further, however, that Lender may subject up to one hundred percent (100%) of the Loans made hereunder to a repurchase agreement. (b) The date, amount and interest rate of each Loan made by Lender to either Borrower, and each payment made on account of the principal thereof, shall be recorded by Lender from time to time on its internal books and records (whether electronic or otherwise). Failure of Lender to make such notation shall not affect the obligations of Borrowers to make a payment when due of any amount owing hereunder or under the Note in respect of the Loans. Borrowers agree that Lender's books and records showing the MS Indebtedness pursuant to this Loan Agreement and the other Loan Documents shall be admissible in any action or proceeding arising therefrom, and shall constitute rebuttably presumptive proof thereof, irrespective of whether any MS Indebtedness is also evidenced by a promissory note or other instrument. Lender will provide to the Borrowers a monthly statement of Loans, payments, and other transactions pursuant to this Loan Agreement. Failure by Lender to provide such monthly statement shall not affect the obligations of Borrowers to make a payment when due of any amount owing hereunder or under the Note in respect of the Loans. Such statement shall be deemed correct, accurate, and binding on Borrowers absent manifest error. 2.03 Procedures for Borrowing. (a) Preliminary Approval of Proposed Collateral. (i) Either Borrower may, from time to time, submit to Lender a Preliminary Due Diligence Package for Lender's review and approval in order to request a borrowing -14- hereunder with respect to any proposed Collateral that such Borrower proposes to pledge to Lender and to be included in the Borrowing Base in connection with such borrowing. (ii) Upon Lender's receipt of a complete Preliminary Due Diligence Package, Lender within two (2) Business Days shall have the right to request, in Lender's sole and absolute discretion, additional diligence materials and deliveries that Lender shall specify on a Supplemental Due Diligence List. Upon Lender's receipt of all of the Diligence Materials or Lender's waiver thereof, Lender, within five (5) Business Days, shall either (i) notify such Borrower of the Maximum Advance Rate (which may be less than the Advance Rate set forth in the definition of Eurodollar Rate Spread) and the Asset Value for the proposed Collateral or (ii) deny, in Lender's sole and absolute discretion, such Borrower's request for an advance. Lender's failure to respond to such Borrower within five (5) Business Days following receipt of all Diligence Materials or Lender's written waiver thereof shall be deemed to be a denial of such Borrower's request for an advance, unless Lender and such Borrower have agreed otherwise in writing. Nothing in this Section 2.03(a)(ii) or elsewhere in this Loan Agreement shall, or be deemed to, prohibit Lender from determining in its sole discretion the adequacy, correctness and appropriateness of, or from disapproving, any and all financial and other underwriting data required to be supplied by Borrowers under this Loan Agreement. (b) Final Approval of Proposed Collateral. Upon Lender's notification to the applicable Borrower of the Maximum Advance Rate and the Asset Value for any proposed Collateral, such Borrower shall, if such Borrower desires to obtain one or more advances secured by such proposed Collateral, satisfy the conditions set forth below (in addition to satisfying the conditions precedent to obtaining each advance, as set forth in Section 5 of this Loan Agreement) as conditions precedent to Lender's approval of such proposed Collateral as Collateral, all in a manner, and pursuant to documentation, satisfactory in all respects to Lender and its counsel: (i) Environmental and Engineering. If applicable, Lender shall have received an Environmental Report and an Engineering Report, each in form and substance satisfactory to Lender, by an Engineer and Environmental Consultant listed on Schedules 3 and 4 attached hereto, respectively, as each such schedule may be amended from time to time by Lender in its reasonable discretion. (ii) Appraisal. If applicable, Lender shall have received an Appraisal. (iii) Insurance. With respect to proposed Collateral that is real property, Lender shall have received certificates or other evidence of insurance demonstrating insurance coverage in respect of such real property of types, in amounts, with insurers and otherwise in compliance with the terms, provisions and conditions set forth in the Collateral Documents or the Security Documents. Such certificates or other evidence shall indicate the applicable Borrower, as lender, will be named as an additional insured as its interest may appear and shall contain a loss payee endorsement in favor of such additional insured with respect to the property policies required to be maintained under the Collateral Documents. (iv) Survey. With respect to a Collateral Loan, a B Note or an Equity Interest, to the extent obtained by the applicable Borrower from the Collateral Obligor with respect to any item of Collateral at the origination of the underlying loan or equity interest, as the case may be, relating thereto, Lender shall have received with respect to proposed Collateral that is real property, a current survey of such real property in a form satisfactory to Lender. (v) Lien Search Reports. Lender or Lender's counsel shall have received, as reasonably requested by Lender, satisfactory reports of UCC, tax lien, judgment and litigation searches and title reports and updates, as applicable, conducted by search firms and/or title companies acceptable to Lender with respect to the Collateral, the applicable Borrower and the -15- related underlying obligor, such searches to be conducted in each location Lender shall reasonably designate. (vi) Title Insurance Policy. (A) With respect to a Mortgage Loan, the applicable Borrower shall have delivered to Lender (1) an unconditional commitment to issue title insurance policies in favor of Lender and Lender's successors and/or assigns with respect to Lender's interest in the related real property with an amount of insurance that shall be not less than the related Asset-Specific Loan Balance (taking into account the proposed advance) or such other amount as Lender shall require in its sole discretion or (2) an endorsement or confirmatory letter from the existing title company to the existing Title Insurance Policy in favor of Lender and Lender's successors and/or assigns that amends the existing title insurance policy by stating that the amount of the insurance is no less than the related Asset-Specific Loan Balance (taking into account the proposed advance) or such other amount of title coverage as Lender shall require in its sole discretion. (B) With respect to a Mezzanine Loan, a B Note or an Equity Interest, such Borrower shall have delivered to Lender such evidence as Lender on a case-by-case basis, in its sole discretion, shall require of the ownership of the real property underlying such item of Collateral including, without limitation, a copy of a title insurance policy dated a date, and by a title insurer, in each case acceptable to Lender in its sole discretion, showing that title is vested in the related Collateral Obligor or in an entity in whom such Collateral Obligor holds a beneficial interest. (vii) Security Documents. The applicable Borrower shall have executed and delivered to Lender, in form and substance satisfactory to Lender and its counsel, all security documents perfecting Lender's security interest in the proposed Collateral (and in any Interest Rate Protection Agreements held by such Borrower with respect thereto) which shall be subject to no Liens except as expressly permitted by Lender. Each of the security documents shall contain such representations and warranties concerning the proposed Collateral and such other terms as shall be reasonably satisfactory to Lender. (viii) Opinions of Counsel. Lender shall have received from counsel to Borrowers its legal opinion as to enforceability of this Loan Agreement and all documents executed and delivered hereunder in connection with such Loan, (at Lender's option) an opinion from local counsel where the applicable property is located, and an opinion to the applicable Borrower and its successors and assigns from counsel to the underlying obligor on the underlying loan transaction, as applicable, as to enforceability of the loan documents governing such transaction and such other matters as Lender shall require (including, without limitation, opinions as to due formation, authority, choice of law and perfection of security interests). Such legal opinions shall be addressed to Lender and its successors and assigns, dated the related Funding Date, and in form and substance reasonably satisfactory to Lender. (ix) Additional Real Estate Matters. To the extent obtained by either Borrower from the Collateral Obligor relating to any item of Collateral at the origination of the underlying loan or equity interest relating thereto, such Borrower shall have delivered to Lender such other real estate related certificates and documentation as may have been requested by Lender, such as (i) certificates of occupancy and letters certifying that the property is in compliance with all applicable zoning laws, each issued by the appropriate Governmental Authority and (ii) abstracts of all Leases in effect at the real property relating to such Collateral. -16- (x) B Notes. In the case of a B Note, Lender shall have received all documentation specified herein as if the underlying mezzanine loan or mortgage loan were the direct Collateral and, in addition, all documentation evidencing or otherwise relating to the B Note. (xi) Other Documents. Lender shall have received such other documents as Lender or its counsel shall request with respect to each or any item of Collateral. (c) Collateral Approval or Disapproval. Within two (2) Business Days following the date upon which either Borrower has tendered performance of the conditions enumerated in Sections 2.03(b)(i) through (xi), or has delivered such items or documents fully executed, if applicable, in final form, Lender shall either (i) if the Collateral Documents or the Security Documents with respect to the proposed Collateral are not reasonably satisfactory in form and substance to Lender, notify such Borrower that Lender has not approved the proposed Collateral as Collateral or (ii) notify such Borrower and Bailee that Lender has approved the proposed Collateral as Collateral and such notice shall identify the documents to be delivered to Custodian in connection with such proposed Collateral pursuant to Sections 2.03 and 5 of this Loan Agreement and shall identify the party whom Lender shall designate to record and/or file, as the case may be, any security documents necessary to perfect Lender's security interest in the Eligible Collateral. The terms of delivery and filing and/or recordation of such security documents shall be set forth in a separate agreement between Lender and its designee. Lender's failure to respond to such Borrower within two (2) Business Days shall be deemed to be a denial of such Borrower's request that Lender approve the proposed Collateral, unless Lender and such Borrower have agreed otherwise in writing. (d) Procedure for Borrowing with Respect to Eligible Collateral. Once Lender has approved the Collateral in accordance with Section 2.03(c) above, the applicable Borrower may request a Loan hereunder, on any Business Day during the period from and including the Effective Date to and including the Termination Date, by delivering to Lender, with a copy to Custodian, an irrevocable written request for borrowing, substantially in the form of Exhibit D attached hereto, which request must be received by Lender prior to 11:00 a.m., New York City time, one (l) Business Day prior to the requested Funding Date. Such request for borrowing shall (1) attach a schedule identifying the Eligible Collateral that such Borrower proposes to pledge to Lender and to be included in the Borrowing Base in connection with such borrowing, (2) specify the requested Funding Date, and (3) attach an Officer's Certificate signed by a Responsible Officer of such Borrower as required by Section 5.02(b) hereof. Contemporaneously with the delivery of the request for borrowing, such Borrower shall deliver to Lender with a copy to Custodian, a Custodial Identification Certificate along with the accompanying Collateral Schedule with respect to all proposed Eligible Collateral to be pledged to Lender on the applicable Funding Date. (e) Delivery of Collateral Files and Security Documents. "Non-Table Funded" Eligible Collateral: --------------------------------------- 1) By no later than 1:00 p.m., New York City time, one (1) Business Day prior to any Funding Date, the applicable Borrower and/or the Bailee shall deliver to the Custodian as to any Eligible Collateral on a case-by-case basis, (i) original counterparts of all Collateral Documents comprising the Collateral File, (ii) the security documents described in Section 2.03(b)(vii) above, and (iii) to the extent applicable, any other documents, reports or updated information as Lender shall request pursuant to Section 2.03(b)(i)-(xi) and Section 5.03(b) not heretofore finally approved by Lender. "Table Funded" Eligible Collateral: ----------------------------------- 1) By no later than 1:00 p.m., New York City time, on the Funding Date, the applicable Borrower shall cause the Bailee to deliver to the Custodian by facsimile (i) as to each item of Eligible Collateral, the note, if applicable, evidencing the making of a -17- loan secured by such Eligible Collateral, a fully executed Bailee Agreement and Bailee's Trust Receipt and Certification issued by the Bailee thereunder, (ii) as to all other categories of Eligible Collateral on a case-by-case basis, the delivery of all fully executed documents and instruments required by Lender to comprise the Collateral File and (iii) evidence satisfactory to Lender that all documents necessary to perfect such Borrower's interest in the Eligible Collateral have been delivered to a party acceptable to Lender for recordation and filing. 2) By no later than 1:00 p.m., New York City time, on the third Business Day following the applicable Funding Date, such Borrower shall cause the Bailee to deliver to the Custodian the Collateral File. (f) No later than 1:00 p.m., New York City time, on each Funding Date, such Borrower shall provide Custodian with a final Custodial Identification Certificate and related Collateral Schedule with respect to the Eligible Collateral to be pledged to the Lender on such Funding Date, indicating any changes, if any, from the Custodial Identification Certificate and related Collateral Schedule heretofore delivered to Lender and Custodian pursuant to Section 2.03(d) above. (g) If either Borrower shall deliver a request for a borrowing pursuant to Section 2.03(d) hereof and all conditions precedent set forth in Sections 2.03(a), 2.03(b), 2.03(c), 5.01 and 5.02 have been met, and provided no Default or Event of Default shall have occurred and be continuing, Lender shall make a Loan to such Borrower on the requested Funding Date, in the amount so requested and approved by Lender. (h) Subject to the delivery by Custodian to such Borrower and Lender of a Trust Receipt with a Collateral Schedule in respect to all Collateral pledged to Lender on such Funding Date by no later then 3:00 p.m. on such date, and subject further to the provisions of Section 5 hereof, such borrowing will then be made available to such Borrower by Lender transferring, via wire transfer, to the following account of Borrowers: Bank of New York, 530 Fifth Avenue, New York, New York, Account No. 630-0439428 for the benefit of Capital Trust, ABA# 021-000018, Attn: Tarryn Kone ((212) 852-4219) the aggregate amount of such borrowing in funds immediately available to CT. Lender may consider on a case-by-case basis in its sole, absolute discretion alternative funding arrangements requested by either Borrower. (i) From time to time, the applicable Borrower shall forward to the Custodian additional original documents or additional documents evidencing any (i) assumption, modification, consolidation or extension of a Collateral Loan, or (iii) any amendment to the operative documents with respect to an Equity Interest, in each case approved by the Lender in accordance with the terms of this Loan Agreement and upon receipt of any such other documents, the Custodian shall hold such other documents as the Lender shall request from time to time. (j) With respect to any documents which have been delivered or are being delivered to recording offices for recording and have not been returned to the applicable Borrower in time to permit their delivery hereunder at the time required, in lieu of delivering such original documents, such Borrower shall deliver to Lender a true copy thereof with an Officer's Certificate certifying that such copy is a true, correct and complete copy of the original, which has been transmitted for recordation. Such Borrower shall deliver such original documents to the Custodian promptly when they are received. 2.04 Mandatory Prepayments or Pledge. (a) Lender may determine and re-determine the Borrowing Base for each Borrower on any Business Day and on as many Business Days as it may elect. If at any time (i) the aggregate outstanding principal amount of Loans to either Borrower exceeds the Borrowing Base for such Borrower (a "Borrowing Base Deficiency"), as determined by Lender in its sole discretion and notified to such Borrower on any Business Day, or (ii) either Borrower shall have received a prepayment of the principal of any loan or preferred equity interest comprising a portion of the Collateral (including, without -18- limitation, the payment of casualty or condemnation proceeds), such Borrower shall, in the case of (i) above, not later than one (1) Business Day after receipt of such notice, or in the case of (ii) above, not later than one (1) Business Day after receipt of such prepayment, either prepay the Loans made to such Borrower in part or in whole or pledge additional Collateral (which Collateral shall be in all respects acceptable to Lender) to Lender, such that after giving effect to such prepayment or pledge the aggregate outstanding principal amount of the Loans made to such Borrower does not exceed the Borrowing Base for such Borrower as re-determined by Lender after the addition of Collateral. So long as no Default or Event of Default has occurred and is then continuing, all partial repayments shall be applied against the Asset-Specific Loan Balance relating to the Loan being repaid. (b) If at any time under any Collateral Document evidencing Eligible Collateral (x) there is an Event of Default, or event with which the giving of notice or lapse of time or both would become an Event of Default, or (y) any representation or warranty made by or on behalf of the relevant Collateral Obligor becomes false or misleading in any material respect or (z) the relevant Collateral Obligor fails to perform or observe any material covenant or other obligation, Lender may, in its sole discretion and without regard to any determination of the Asset Value of such Eligible Collateral, notify Borrowers of such occurrence and may require that the Asset-Specific Loan Balance related to the relevant Eligible Collateral be prepaid in whole or in part in the determination of Lender. Not later than one (1) Business Day after the receipt of such notice, the applicable Borrower shall prepay the Asset-Specific Loan Balance related to such Eligible Collateral. Lender may, in its sole discretion, determine and re-determine the amount to be prepaid irrespective of whether or not either (i) any statement of fact contained in any Officer's Certificate delivered pursuant to Section 5.02(b) or (ii) any representation of Borrowers set forth in Section 6.13 was true to Borrowers' actual knowledge. Section 3. Payments; Computations; Etc. 3.01 Repayment of Loans; Interest. (a) Borrowers hereby promise to repay in full on the Termination Date the aggregate outstanding principal amount of the Loans; provided, however, in the event the Termination Date shall be extended to April 15, 2006 pursuant to the terms hereof, Borrowers promise to repay such aggregate principal amount of the Loans outstanding on July 16, 2005 by the payment on the first Business Day of each calendar month during the Amortization Period beginning with August 1, 2005 and on the Termination Date, as extended (each, an "Installment Date") of an amount equal to the quotient of (x) the aggregate principal amount of the Loans outstanding as at July 16, 2005 divided by (y) nine (9) (such schedule of payments, the "Amortization Schedule"); provided, further, that in the event that Borrowers shall repay any portion of the outstanding principal in an amount in excess of the amount then due and payable in accordance with the Amortization Schedule, the Amortization Schedule shall be recalculated such that Borrowers shall repay the principal amount of the Loans outstanding on the date of such repayment (after taking such repayment into account) by the payment on each Installment Date remaining in the Amortization Period of an amount equal to the quotient of (x) the aggregate principal amount of the Loans outstanding on the date of such repayment (after taking such repayment into account) divided by (y) the number of Installment Dates remaining during the Amortization Period. Any repayment of the principal of the Loans made by Borrowers to Lender subsequent to an Installment Date shall be credited at the time of such payment and applied to the payment due on next succeeding Installment Date. (b) Borrowers hereby promise to pay to Lender interest on the unpaid principal amount of each Loan for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at a rate per annum equal to the Eurodollar Rate plus the applicable Eurodollar Rate Spread. Notwithstanding the foregoing, Borrowers hereby promise to pay to Lender, to the extent permitted by applicable law, interest at the applicable Post-Default Rate on any principal of any Loan and on any other amount payable by Borrowers hereunder or under the Note that shall not be paid in full when due (whether at stated maturity, by acceleration or by mandatory prepayment or otherwise) for the period from and including the due date thereof to but excluding the date the same is paid in full. Payment and acceptance of interest pursuant to this subsection shall not constitute a waiver of any Default and shall not -19- otherwise limit or prejudice any right of Lender hereunder. In no event shall Lender be entitled to receive any proceeds received from any Collateral Obligor in connection with the refinancing and/or final distribution to Lender with respect to any Eligible Collateral to the extent same exceeds the sums provided to be paid to Lender under Section 7.l6 of this Loan Agreement. (c) Accrued interest on each Loan shall be payable monthly in arrears on the first Business Day of each month and for the last month of the Loan Agreement on the first Business Day of such last month and on the Termination Date, except that interest payable at the Post-Default Rate shall accrue daily and shall be payable upon such accrual. (d) The Loans may be prepaid in whole or in part at any time upon two (2) Business Days' prior written notice, without any penalty or premium; provided, however, that any such prepayment shall be accompanied by an amount representing accrued interest on the principal amount being prepaid and all other amounts then due under the Loan Documents (including, without limitation, all amounts due under Section 3 hereof). Each partial prepayment that is voluntary (as opposed to mandatory under the terms of this Loan Agreement) shall be in an amount of not less than One Hundred Thousand Dollars ($100,000). So long as no Default or Event of Default has occurred and is then continuing, each voluntary prepayment shall be applied to reduce any Asset-Specific Loan Balance as designated by Borrowers to Lender in writing. (e) With respect to any item of Collateral, Borrowers shall repay to Lender an amount equal to the amount of casualty or condemnation proceeds paid to, or for the benefit of, Borrowers or any underlying obligor in respect of such item of Collateral to the extent that the applicable Borrower is not required under the underlying loan documents with such Borrower's obligor to reserve, escrow, readvance or apply such proceeds for the benefit of such obligor or the underlying real property. So long as no Default or Event of Default has occurred and is then continuing, such amounts paid to Lender shall be applied in reduction of the Asset-Specific Loan Balance relating to such item of Collateral. (f) Borrowers hereby promise to pay to Lender a Minimum Usage Fee, in arrears for the previous calendar quarter, which obligation shall commence on January 1, 2004 for the October 1, 2003 through December 31, 2003 calendar quarter. Said Minimum Usage Fee shall be paid on January 1, 2004 and on the first Payment Date in each calendar quarter thereafter through and including the Termination Date. The last such payment shall be pro-rated, as applicable. No Minimum Usage Fee shall be payable during the Amortization Period, if any. 3.02 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by Borrowers under this Loan Agreement and the Note shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Lender at the following account maintained by Lender: Account No. 40615114, for the account of MSMCI, Citibank, N.A., ABA No. 021000089, Attn: Whole Loan Operations, Mortgage-Backed Securities Department, Fixed Income Division, not later than 1:00 p.m., New York City time, on the date on which such payment shall become due (and each such payment made after such time on such due date shall be deemed to have been made on the next succeeding Business Day). Borrowers acknowledge that they have no rights of withdrawal from the foregoing account. Lender shall endeavor to send Borrowers a detailed bill on the date which is two (2) Business Days prior to the date on which payment is due; provided, however, that the failure of Lender to send, or of Borrowers to receive, such bill shall in no way affect Borrowers' obligation to pay amounts due under this Loan Agreement. (b) Except to the extent otherwise expressly provided herein, if the due date of any payment under this Loan Agreement or the Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. -20- 3.03 Computations. Interest on the Loans shall be computed on the basis of a 360-day year for the actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. Lender shall determine any rate of interest payable on Loans hereunder, and such determination shall be conclusive and binding, absent manifest error. 3.04 U.S. Taxes. (a) Borrowers agree to pay to Lender such additional amounts as are necessary in order that the net payment of any amount due to Lender hereunder after deduction for or withholding in respect of any U.S. Tax (as defined below) imposed with respect to such payment (or in lieu thereof, payment of such U.S. Tax by Lender), will not be less than the amount stated herein to be then due and payable; provided that the foregoing obligation to pay such additional amounts, to the extent attributable to a U.S. Tax, shall not apply: (i) to any payment to Lender hereunder unless Lender is entitled to submit a Form W-8BEN (relating to Lender and entitling it to a complete exemption from withholding on all interest to be received by it hereunder in respect of the Loans) or Form W-8ECI (relating to all interest to be received by Lender hereunder in respect of the Loans), or (ii) to any U.S. Tax imposed solely by reason of the failure by Lender to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of America of Lender if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Tax. For the purposes of this Section 3.04, (x) "Form W-8BEN" shall mean Form W-8BEN of the Department of the Treasury of the United States of America, (y) "Form W-8ECI" shall mean Form W8ECI of the Department of the Treasury of the United States of America (or in relation to either such Form such successor and related form as may from time to time be adopted by the relevant taxing authorities of the United States of America to document a claim to which such Form relates), and (z) "U.S. Taxes" shall mean any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States of America, any political subdivision of the United States of America or any taxing authority thereof or therein. (b) Within 30 days after paying any such amount to Lender, and within 30 days after it is required by law to remit such deduction or withholding to any relevant taxing or other authority, the applicable Borrower shall deliver to Lender evidence satisfactory to Lender of such deduction, withholding or payment (as the case may be). (c) Lender represents and warrants to Borrowers that on the date hereof Lender is either incorporated under the laws of the United States or a State thereof or is entitled to submit a Form W-8BEN (relating to Lender and entitling it to a complete exemption from withholding on all interest to be received by it hereunder in respect of the Loans) or Form W-8ECI (relating to all interest to be received by Lender hereunder in respect of the Loans). Lender shall not assign or sell participation interests in the Loans made or to be made hereunder to a foreign bank if as a result thereof Lender shall be unable to make the representations set forth in this Section 3.04(c). 3.05 Booking of Loans. Without limitation of Lender's rights to sell, assign or transfer a Loan or any interest therein, including any participation interest therein, at any time and from time to time, Lender may make, carry or transfer such Loan at, to, or for the account of any of its branch offices or the office of an Affiliate of Lender; provided, however, that the representation in Section 3.04(c) shall remain true throughout the term of such Loan. 3.06 Lender's Funding of Eurodollar Rate Loans. Borrowers hereby expressly acknowledge and agree that Lender may fund a Loan in any manner it sees fit, including (i) through the actual purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of -21- Eurodollar Rate in an amount equal to the principal amount of such Loan and having a maturity comparable to the relevant interest period or (ii) through Lender's entering into or purchase of repurchase agreements, interest rate agreements, swap agreements or other arrangements in such amounts as Lender shall determine (and which amounts may or may not, in Lender's sole discretion, be "match funded" to such Loan). Calculation of all amounts payable to Lender under this Section 3.06 and under Section 3.07 shall be made as though Lender had actually funded such Loan through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of Eurodollar Rate in an amount equal to the amount of such Loan and having a maturity comparable to the relevant interest period and through the transfer of such Eurodollar deposit from an off-shore office of Lender to a domestic office of Lender in the United States of America; provided, however, that Lender may fund such Loan in any manner it sees fit and the foregoing assumptions shall be utilized only for purposes of calculating amounts payable under this Section 3.06 and under Section 3.07, if any. 3.07 Funding Costs. (a) Borrowers shall compensate Lender, upon written request by Lender (which request shall set forth the basis for requesting such amounts), for all Funding Costs. (b) Lender shall deliver to Borrowers a statement setting forth the amount and basis of determination of any Funding Cost, it being agreed that such statement and the method of calculation shall be conclusive and binding on Borrowers, absent manifest error. In addition, in the event Borrowers provide Lender not less than five (5) Business Days prior written notice of a proposed voluntary prepayment hereunder, Lender shall deliver to Borrowers a non-binding good faith estimate of the applicable components and amount of Funding Costs which would be incurred by Borrowers if Borrowers were to make a voluntary prepayment hereunder; provided, however, that Borrowers shall remain liable for all Funding Costs shown on the statement referred to in the first sentence of this subsection (b), notwithstanding such good faith estimate. (c) In lieu of prepaying the Loan when and as otherwise required or permitted by this Loan Agreement, Borrowers may on any Business Day (a "Deposit Funding Date") instead deposit with Lender an amount equal to the applicable prepayment, to be held by Lender (the "Prepayment Deposit") until such date as application of the Prepayment Deposit on account of the Loan would not cause Lender to suffer Funding Costs (the "Deposit Application Date"). Any Prepayment Deposit held by Lender shall: (a) constitute additional security for the Loan, for which the parties shall enter into such security documents (and account establishment and administration documents) as Lender shall require; (b) be held by Lender in an interest-bearing account selected and controlled solely by Lender, interest on which shall be added to principal and applied in the same manner as principal; (c) at Lender's option, be accompanied by a payment (as estimated by Lender) equal to the difference between the interest to be earned on the Prepayment Deposit and the interest that will accrue on a portion of the Loan equal to the Prepayment Deposit during the period from the Deposit Funding Date to the Deposit Application Date; (d) with respect to the Collateral, entitle Borrowers to the same rights and benefits (including the right to releases, if any) that would have been available to Borrowers if Borrowers had prepaid the Loan (and designated Asset-Specific Loan Balance(s)) by an amount equal to the Prepayment Deposit; and (e) be applied on account of the Loan (principal and interest) on the Deposit Application Date. 3.08 Compensation for Increased Costs. If Lender shall in good faith determine that any change in any law, treaty or governmental rule, regulation or order, or in the interpretation, administration or application thereof, or any determination of a court or governmental authority, or compliance with any guideline, request or directive issued or made by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (a) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or -22- advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender; or (b) imposes any other condition on or affecting Lender or its obligations hereunder or the interbank Eurodollar market; and the result of any of the foregoing is to increase the cost to Lender of agreeing to make, making or maintaining the Loan hereunder or to reduce any amount received or receivable by Lender with respect thereto; then, in any such case, Borrowers shall promptly (but in any event no later than five (5) Business Days following any notice from Lender of the same) pay to Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate Lender for any such increased cost or reduction in amounts received or receivable hereunder. Lender shall deliver to Borrowers a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 3.08, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 3.09 Limitation on Types of Loans; Illegality. Anything herein to the contrary notwithstanding, if: (a) Lender determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Loans as provided herein; or (b) Lender determines, which determination shall be conclusive, that the relevant rate of interest referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof upon the basis of which the rate of interest for Loans is to be determined is not likely adequate to cover the cost to Lender of making or maintaining Loans; or (c) Lender determines, which determination shall be conclusive, that it is or will be unlawful for Lender to honor its obligation to make or maintain Loans hereunder using a Eurodollar Rate as a result of compliance by Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful); then Lender shall give Borrowers prompt notice thereof and, so long as such condition remains in effect, Lender shall be under no obligation to make additional Loans, and Borrowers shall either prepay all such Loans as may be outstanding or pay interest on such Loans at a rate per annum equal to the Eurodollar Substitute Rate. In the event Lender exercises its rights under this Section 3.09, Borrower's obligation under Section 3.01(f) hereof to pay a Minimum Usage Fee shall terminate for the period of time such condition remains in effect. Section 4. Collateral Security. 4.01 Collateral; Security Interest. (a) Borrowers hereby assign, pledge and grant a security interest in all of its right, title and interest in, to and under the Collateral described in Section 4.01(b) below to Lender to secure the repayment of principal of and interest on all Loans and all other amounts owing to Lender hereunder, under the Note, under the other Loan Documents and any and all MS Indebtedness from time to time outstanding (collectively, the "Secured Obligations"). Borrowers agree to mark their computer records to evidence the interests granted to Lender hereunder. (b) All of each Borrower's right, title and interest in, to and under each of the following items of property pledged by either Borrower to Lender from time to time and whether now owned or hereafter acquired, now existing or hereafter created and wherever located, is hereinafter individually and collectively referred to as the "Collateral": -23- (i) all Mortgage Loans, Mezzanine Loans, B Notes, Equity Interests, CMBS and Other Approved Collateral, including, without limitation, the Existing CT Collateral and the Existing Fund I Collateral; (ii) all Collateral Documents, including without limitation all promissory notes, all securities, any collateral pledged or otherwise relating to such Collateral, all representations and warranties made to, or for the benefit of, either Borrower by any Collateral Obligor, all Servicing Records (as defined in Section 11.14(b) below) and servicing agreements, together with all files, documents, instruments, surveys, certificates, correspondence, appraisals, computer programs, computer storage media, accounting records and other books and records relating thereto, in each case subject to prior liens and encumbrances permitted by Lender; (iii) all guaranties and insurance (issued by governmental agencies or otherwise) and any insurance certificate or other document evidencing such guaranties or insurance relating to any Collateral and all claims and payments thereunder; (iv) all other insurance policies and insurance proceeds relating to any Collateral or the related Property; (v) all Interest Rate Protection Agreements; (vi) the Collection Account and all monies from time to time on deposit in the Collection Account; (vii) all "general intangibles", "accounts" and "chattel paper" as defined in the Uniform Commercial Code relating to or constituting any and all of the foregoing; and (viii) any and all replacements, substitutions, distributions on, or proceeds (including, without limitation, condemnation proceeds) of, any and all of the foregoing set forth in items (i) through (vii) of this Section 4.01(b), whether now owned or hereafter acquired, now existing or hereafter created and wherever located. (c) Pursuant to the Custodial Agreement, Custodian shall hold the Collateral Documents as exclusive bailee and agent for Lender pursuant to terms of the Custodial Agreement and shall deliver to Lender Trust Receipts each to the effect that it has reviewed such Collateral Documents in the manner and to the extent required by the Custodial Agreement and identifying any deficiencies in such Collateral Documents as so reviewed. 4.02 Further Assurances. (a) Borrowers shall undertake, with respect to each item of Collateral pledged hereunder as security for a Loan, any and all actions deemed necessary by Lender for the granting by either Borrower to Lender of a valid first priority security interest in such Collateral. Without limiting the generality of the foregoing, the applicable Borrower shall take such steps as are necessary for the granting and perfection of a first priority security interest in Securities and related Collateral. (b) At any time and from time to time, upon the written request of Lender, and at the sole expense of Borrowers, Borrowers will promptly and duly execute and deliver, or will promptly cause to be executed and delivered, such further instruments and documents and take such further action as Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Loan Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the Liens created hereby. Borrowers also hereby authorize Lender to file any such financing or continuation statement without the signature of Borrowers to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Loan Agreement shall be sufficient as a financing statement for filing in any jurisdiction. -24- 4.03 Changes in Locations, Name, etc. Borrowers shall not (i) change the location of their chief executive offices/chief places of business from that specified in Section 6 hereof or (ii) change their respective name, identity or corporate structure (or the equivalent) or change the location where they maintain their records with respect to the Collateral unless they shall have given Lender at least ten (10) days prior written notice thereof and shall have delivered to Lender all Uniform Commercial Code financing statements and amendments thereto as Lender shall request and taken all other actions deemed necessary by Lender to continue its perfected status in the Collateral with the same or better priority. 4.04 Lender's Appointment as Attorney-in-Fact. (a) Borrowers hereby irrevocably constitute and appoint Lender and any officer or agent thereof, with full power of substitution, as their true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Borrowers and in the name of Borrowers or in its own name, from time to time in Lender's discretion, for the purpose of carrying out the terms of this Loan Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Loan Agreement, and, without limiting the generality of the foregoing, Borrowers hereby give Lender the power and right, on behalf of Borrowers, without assent by, but with notice to, Borrowers, if an Event of Default shall have occurred and be continuing, to do the following: (i) in the name of Borrowers or its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any mortgage insurance or with respect to any other Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by Lender for the purpose of collecting any and all such moneys due under any such mortgage insurance or with respect to any other Collateral whenever payable; (ii) to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral; and (iii) (A) to direct any party liable for any payment under any Collateral to make payment of any and all moneys due or to become due thereunder directly to Lender or as Lender shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against either Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as Lender may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Lender were the absolute owner thereof for all purposes, and to do, at Lender's option and Borrowers' expense, at any time, and from time to time, all acts and things which Lender deems reasonably necessary to protect, preserve or realize upon the Collateral and Lender's Liens thereon and to effect the intent of this Loan Agreement, all as fully and effectively as Borrowers might do. Borrowers hereby ratify all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable until the repayment in full of all Secured Obligations hereunder. -25- (b) Borrowers also authorize Lender, at any time and from time to time, to execute, in connection with any sale provided for in Section 4.07 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. (c) The powers conferred on Lender are solely to protect Lender's interests in the Collateral and shall not impose any duty upon Lender to exercise any such powers. Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither Lender nor any of its officers, directors, or employees shall be responsible to Borrowers for any act or failure to act hereunder, except for its own gross negligence or willful misconduct. 4.05 Performance by Lender of Borrowers' Obligations. If Borrowers fail to perform or comply with any of their agreements contained in the Loan Documents and Lender may itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Lender incurred in connection with such performance or compliance, together with interest thereon at a rate per annum equal to the Post-Default Rate, shall be payable by Borrowers to Lender on demand and shall constitute Secured Obligations. 4.06 Proceeds. If an Event of Default shall occur and be continuing, (a) all proceeds of Collateral received by either Borrower consisting of cash, checks and other near-cash items shall be held by such Borrower in trust for Lender, segregated from other funds of such Borrower, and, within two (2) Business Days of receipt by such Borrower, shall be turned over to Lender in the exact form received by such Borrower (duly endorsed by such Borrower to Lender, if required, in order to be negotiated by Lender) and (b) any and all such proceeds received by Lender (whether from either Borrower or otherwise) may, in the sole discretion of Lender, be held by Lender as collateral security for, and/or then or at any time thereafter may be applied by Lender against, the Secured Obligations (whether matured or unmatured), such application to be in such order as Lender shall elect. Any balance of such proceeds remaining after the Secured Obligations shall have been paid in full and this Loan Agreement shall have been terminated shall be paid over to Borrowers or to whomsoever may be lawfully entitled to receive the same. For purposes hereof, proceeds shall include, but not be limited to, all principal and interest payments, all prepayments and payoffs, insurance claims, condemnation awards, sale proceeds, real estate owned rents and any other income and all other amounts received with respect to the Collateral. 4.07 Remedies. If an Event of Default shall occur and be continuing, Lender may, at its option, enter into one or more Interest Rate Protection Agreements covering all or a portion of the Collateral Loans pledged to Lender hereunder, and Borrowers shall be responsible for all damages, judgment costs and expenses of any kind which may be imposed on, incurred by or asserted against Lender relating to or arising out of such Interest Rate Protection Agreements; including without limitation any losses resulting from such Interest Rate Protection Agreements. If an Event of Default shall occur and be continuing, Lender may exercise, in addition to all other rights and remedies granted to it in this Loan Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, Lender without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon Borrowers or any other Person (each and all of which demands, presentments, protests, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels or as an entirety at public or private sale or sales, at any exchange, broker's board or office of Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Borrowers, which right or equity is hereby waived or released. Borrowers further agree, at Lender's request, to assemble the Collateral and -26- make it available to Lender at places which Lender shall reasonably select, whether at Borrowers' premises or elsewhere. Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Lender hereunder, including without limitation reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Secured Obligations, in such order as Lender may elect, and only after such application and after the payment by Lender of any other amount required or permitted by any provision of law, including without limitation Section 9-608(a)(1)(C) of the Uniform Commercial Code, need Lender account for the surplus, if any, to Borrowers. To the extent permitted by applicable law, Borrowers waive all claims, damages and demands they may acquire against Lender arising out of the exercise by Lender of any of its rights hereunder, other than those claims, damages and demands arising from the gross negligence or willful misconduct of Lender. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. Borrowers shall remain liable for any deficiency (plus accrued interest thereon as contemplated pursuant to Section 3.01(b) hereof) if the proceeds of any sale or other disposition of the Collateral (net of costs incurred in connection with such sale or other disposition) are insufficient to pay the Secured Obligations and the fees and disbursements of any attorneys employed by Lender to collect such deficiency. 4.08 Limitation on Duties Regarding Preservation of Collateral. Lender's duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as Lender deals with similar property for its own account. Neither Lender nor any of its directors, officers or employees shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Borrowers or otherwise. 4.09 Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. 4.10 Release of Security Interest. Upon termination of this Loan Agreement and repayment to Lender of all Secured Obligations and the performance of all obligations under the Loan Documents, Lender shall release its security interest in any remaining Collateral. 4.11 Release of Collateral. Provided that no Default or Event of Default shall exist (other than one that (a) relates solely to the Collateral to be released and (b) will be cured simultaneously with such release) and that Borrowers shall have paid all sums then due under the Loan relating thereto, upon (i) Borrowers' payment in full of the Asset-Specific Loan Balance with respect to a portion of the Collateral and (ii) receipt by Lender of a written request from the applicable Borrower for the release of such Collateral, Lender shall as soon as practicable release (and Lender shall reasonably cooperate with Borrowers to facilitate reasonable escrow arrangements to facilitate a simultaneous release of) the related Collateral Documents and the related Collateral and any liens related thereto to such Borrower or, to the extent necessary to facilitate future savings of mortgage tax in states that impose mortgage taxes, assign such liens as such Borrower shall request; provided, that any such assignments shall be without recourse, representation or warranty of any kind except that Lender shall represent and warrant that such Collateral has not been previously assigned by Lender. Lender shall with reasonable promptness, after a written request from such Borrower, execute any document or instrument necessary to effectuate such release or assignment. 4.12 Substitution of Eligible Collateral. From time to time until the Custodian is otherwise notified by the Lender, which notice shall be given by the Lender only during the existence of an Event of Default, and with the prior written consent of the Lender, either Borrower may substitute for one or more items of Eligible Collateral constituting the Collateral with one or more substitute items of Eligible Collateral having aggregate Collateral Value equal to or greater than the Collateral Value of the Collateral being substituted for, or obtain the release of one or more items of Collateral constituting -27- Collateral hereunder: provided that, after giving effect to such substitution or release, the Secured Obligations then outstanding shall not exceed the Borrowing Base, which determination shall be made solely by the Lender. In connection with any such requested substitution or release, such Borrower will provide notice to the Custodian and the Lender no later than 3:00 p.m. New York City time, on the date of such request, specifying the items of Collateral to be substituted for or released and the items of substitute Collateral to be pledged hereunder in substitution thereof, if any, and shall deliver with such notice a Custodial Identification Certificate and a revised Collateral Schedule indicating any substitute Collateral. Section 5. Conditions Precedent. 5.01 Initial Loan. The obligation of Lender to make its initial Loan hereunder is subject to the satisfaction, immediately prior to or concurrently with the making of such Loan, of the condition precedent that Lender shall have received all of the following items and documents, each of which shall be satisfactory to Lender and its counsel in form and substance: (a) Loan Documents. (i) This Loan Agreement, duly completed and executed; (ii) The Note, duly completed and executed, together with a fee in an amount equal to 0.95% (95 basis points) multiplied by the Maximum Credit (provided, that if on or prior to July 16, 2005, Borrower elects (in lieu of taking the actions prescribed under Section 3.01(a) hereof and making the payments under the Amortization Schedule) to renew the revolving loan facility created hereunder for a period of at least nine (9) calendar months, Borrower shall be credited with an amount equal to 9/33 of said fee); and (iii) The Custodial Agreement, duly executed and delivered by Borrowers and Custodian. In addition, Borrowers shall have taken such other action as Lender shall have requested in order to perfect the security interests created pursuant to the Loan Agreement; (b) Organizational Documents. Certified copies of the certificate of incorporation and by-laws of CT and the articles of organization and operating agreement of Fund I and CT-F1 and certificates evidencing all requisite authority for Borrowers with respect to the execution, delivery and performance of the Loan Documents and each other document to be delivered by Borrowers from time to time in connection herewith (and Lender may conclusively rely on such certified copies and certificates until it receives notice in writing from either Borrower to the contrary); (c) Legal Opinion and Certificate as to Substantive Non-Consolidation. A legal opinion of counsel to Borrowers, substantially in the form attached hereto as Exhibit C and a certificate of CT on behalf of itself and Fund I and CT-F1, in form and substance satisfactory to Lender in its sole discretion as to the separate existence of CT, Fund I and CT-F1 and certain factual matters which would be determinative of the probability that, in the event that any of CT, Fund I or CT-F1 were to become a debtor under 11 U.S.C. Section 101 et seq., a federal bankruptcy court would not disregard such separate existence and consolidate the assets and liabilities of CT, Fund I or CT-F1 with any such debtor entity; (d) Trust Receipt and Collateral Schedule and Exception Report. A Trust Receipt, substantially in the form of Annex 2 of the Custodial Agreement, dated the Effective Date, from Custodian, duly completed, with a Collateral Schedule and Exception Report attached thereto; (e) Servicing Agreement(s). Any Servicing Agreement, certified as a true, correct and complete copy of the original, with the letter of the applicable Servicer (i) consenting to termination of such Servicing Agreement upon the occurrence of an Event of Default and (ii) agreeing to hold all moneys received in respect of each item of Collateral for the benefit of Lender, attached; and (f) Other Documents. Such other documents as Lender may reasonably request. -28- 5.02 Initial and Subsequent Loans. The making of each Loan to either Borrower (including the initial Loan) on any Business Day is subject to the delivery of all Collateral Documents pertaining to the Eligible Collateral to be pledged for such Loan, together with all documents set forth in Section 2.03(b)(i)-(x) and the satisfaction of the following further conditions precedent, both immediately prior to the making of such Loan and also after giving effect thereto and to the intended use thereof: (a) no Event of Default or Default shall have occurred and be continuing on such date either before or after giving effect to the making of the advance; (b) Lender shall have received from the Borrowers and Borrowers shall have received from each Collateral Obligor such representations and warranties as Lender shall, in its sole discretion, deem satisfactory. The representations and warranties made by Borrowers in Section 6 hereof, and elsewhere in each of the Loan Documents, shall be true and complete on and as of the date of the making of such Loan in all material respects (in the case of the representations and warranties in Section 6.10, solely with respect to Eligible Collateral included in the Borrowing Base) with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). Lender shall have received an officer's certificate signed by a Responsible Officer of CT certifying as to the truth and accuracy of the above, which certificate shall also include a representation that (i) the applicable Borrower is in compliance with all governmental licenses and authorizations, (ii) the applicable Borrower is qualified to do business, validly existing and, to the extent determinable, in good standing, in all required jurisdictions, (iii) the facts set forth in the Diligence Materials related to the Collateral for such Loan are, to the best knowledge of such Borrower after diligent inquiry, true and correct (or shall fully explain all adverse changes from the information previously supplied to Lender), (iv) there has been no change in the organizational and authority documents provided to Lender pursuant to Section 5.01(b) hereof since the date of the most recent certification thereof to Lender, and (v) there has been no Material Adverse Effect since the date of the last advance to either Borrower hereunder; (c) the aggregate outstanding principal amount of the Loans to each Borrower shall not exceed the Borrowing Base applicable to such Borrower; (d) subject to Lender's right to perform one or more Due Diligence Reviews pursuant to Section 11.15 hereof, Lender shall have completed its due diligence review of the Collateral Documents for each item of Collateral and such other documents, records, agreements, instruments, mortgaged properties or information relating to such item of Collateral as Lender in its sole discretion deems appropriate to review and such review shall be satisfactory to Lender in its sole discretion; (e) Lender shall have received from Custodian a Trust Receipt, together with a Collateral Schedule and Exception Report with Exceptions (as defined in the Custodial Agreement) as are acceptable to Lender in its sole discretion, in respect of the Eligible Collateral to be pledged hereunder on such Business Day; (f) Lender shall have received from the applicable Borrower a Lender's Release Letter substantially in the form of Exhibit E hereto (or such other form acceptable to Lender) covering each item of Collateral to be pledged to Lender to the extent such Collateral is subject to a lender's lien; (g) none of the following shall have occurred and/or be continuing: (i) an event or events shall have occurred resulting in the effective absence of a "repo market" or comparable "lending market" for financing debt obligations secured by mortgage loans or securities for a period of (or reasonably expected to be) at least 30 consecutive days or an event or events shall have occurred resulting in Lender not being able to finance any Loans through the "repo market" or "lending market" with traditional counterparties at rates which would have been reasonable prior to the occurrence of such event or events; -29- (ii) an event or events shall have occurred resulting in the effective absence of a "securities market" for securities backed by mortgage loans for a period of (or reasonably expected to be) at least 30 consecutive days or an event or events shall have occurred resulting in Lender not being able to sell securities backed by mortgage loans at prices which would have been reasonable prior to such event or events; or (iii) there shall have occurred a material adverse change in the financial condition of Lender which effects (or can reasonably be expected to effect) materially and adversely the ability of Lender to fund its obligations under this Loan Agreement; (h) Transaction Costs. The applicable Borrower shall have paid Lender from the proceeds of the advance to be made in connection with such Loan, all Transaction Costs for which bills have been submitted; provided, however, that nothing herein shall be deemed to waive each Borrower's obligation, as applicable, to pay all Transaction Costs whether billed before or after the making of a Loan pursuant to which such Transaction Costs were incurred; (i) Other Documents. Lender shall have received such other documents, and the applicable Borrower shall have taken such other action in order to perfect the security interests created hereunder, as Lender or its counsel shall deem necessary; and (j) No Morgan Stanley Downgrade. MS & Co.'s corporate bond rating as calculated by S&P or Moody's shall not have been lowered or downgraded to a rating below A- as indicated by S&P or below A3 as indicated by Moody's. Each request for a borrowing by either Borrower hereunder shall constitute a certification by such Borrower that all the conditions set forth in this Section 5 have been satisfied (both as of the date of such notice, request or confirmation and as of the date of such borrowing). 5.03 Additional Requirements. (a) Borrowers and Lender recognize and agree that the categories of Collateral set forth in the Recital paragraph hereof and defined herein as categories of assets which may be submitted by either Borrower to Lender for review by Lender as Eligible Collateral hereunder are general in nature and that the full scope of such Collateral categories may be unknown. Consequently, the appropriate requirements are not fully known for (i) the documents to be provided by Borrowers for underwriting and due diligence review by Lender and (ii) submittals by Borrowers in order to create and perfect a first priority security interest in the Collateral. Therefore, Borrowers and Lender agree that, as a further condition precedent to funding a Loan in respect of any Collateral hereunder, the applicable Borrower shall have delivered to Lender all information and documents determined by Lender in good faith to be required for its underwriting and examination of such Collateral and for the granting and perfection of a first priority security interest therein. (b) Without limiting the generality of the foregoing Section 5.03(a), the applicable Borrower shall execute and deliver all documents necessary for the granting of a first priority security interest in any Collateral determined by Lender to be Eligible Collateral hereunder, including without limitation (i) all instruments evidencing indebtedness payable to such Borrower or pledged to such Borrower as security for a loan, (ii) all instruments granting or perfecting a security interest for the benefit of such Borrower or pledged to such Borrower as security for a loan (including, without limitation, collateral assignments, pledge agreements and UCC financing statements), (iii) all instruments evidencing an interest in an entity pledged to such Borrower as security for a loan (including, without limitation, partnership interests, shares of corporate stock, participation interests, and other beneficial interests of any kind), (iv) all instruments guaranteeing the repayment of indebtedness owed to such Borrower, or pledged to such Borrower for the repayment of a Loan and (v) all agreements among holders of debt or equity interests providing for a priority among such parties of interests in related assets forming the basis of an item of Collateral. -30- Section 6. Representations and Warranties. Each Borrower represents and warrants to Lender (as to itself and the Collateral owned by it only) that throughout the term of this Loan Agreement: 6.01 Existence. (A) Fund I (a) is a limited liability company duly organized and validly existing under the laws of the jurisdiction of its organization, (b) has all requisite power, and has all governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, except where the lack of such licenses, authorizations, consents and approvals would not be reasonably likely to have a Material Adverse Effect on its Property, business or financial condition or prospects; and (c) is qualified to do business, validly existing and is, to the extent determinable, in good standing, in all other jurisdictions in which the nature of the business conducted by it makes such qualification necessary, except where failure so to qualify would not be reasonably likely (either individually or in the aggregate) to have a Material Adverse Effect on its Property, business or financial condition or prospects. (B) CT (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its organization, (b) has all requisite power, and has all governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, except where the lack of such licenses, authorizations, consents and approvals would not be reasonably likely to have a Material Adverse Effect on its Property, business or financial condition or prospects; and (c) is qualified to do business, validly existing and is, to the extent determinable, in good standing, in all other jurisdictions in which the nature of the business conducted by it makes such qualification necessary, except where failure so to qualify would not be reasonably likely (either individually or in the aggregate) to have a Material Adverse Effect on its Property, business or financial condition or prospects. CT holds one hundred percent of the membership interests in CT-F1 and CT-F1 holds one hundred percent of the membership interests in Fund I. 6.02 Action. Borrowers have all necessary power, authority and legal right to execute, deliver and perform their respective obligations under each of the Loan Documents; the execution, delivery and performance by Borrowers of each of the Loan Documents have been duly authorized by all necessary action on their respective part; and each Loan Document has been duly and validly executed and delivered by Borrowers and constitutes a legal, valid and binding obligation of Borrowers, enforceable against Borrowers in accordance with its terms. 6.03 Financial Condition. CT agrees to promptly deliver to Lender all publicly filed financial information when and to the extent that the same is made available to the general public. CT has heretofore furnished to Lender a copy of (a) its consolidated balance sheet and the consolidated balance sheets of its consolidated Subsidiaries (including Fund I) for the fiscal year of CT ended December 31, 2002 and the related consolidated statements of income and retained earnings and of cash flows for CT and its consolidated Subsidiaries for such fiscal year, setting forth in each case in comparative form the figures for the previous year, (b) its consolidated balance sheet and the consolidated balance sheets of its consolidated Subsidiaries for such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for CT and its consolidated Subsidiaries for such fiscal year, setting forth in each case in comparative form the figures for the previous year, with the opinion thereon of Ernst & Young and Coopers & Lybrand and (c) its consolidated balance sheet and the consolidated balance sheets of its consolidated Subsidiaries for the quarterly fiscal period of CT ended March 31, 2003 and the related consolidated statements of income and retained earning and of cash flows for CT and its consolidated Subsidiaries for such quarterly fiscal periods, setting forth in each case in comparative form the figures for the previous year. All such financial statements are complete and correct and fairly present, in all material respects, the consolidated financial condition of CT and its Subsidiaries and the consolidated results of their operations as at such dates and for such fiscal periods, all in accordance with GAAP applied on a consistent basis. Since March 31, 2003, there has been no material adverse change in the consolidated business, operations or financial condition of CT and its consolidated Subsidiaries taken as a whole from that set forth in said financial statements. -31- 6.04 Litigation. There are no actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are pending or threatened) or other legal or arbitrable proceedings affecting Borrowers or any of their respective Subsidiaries or affecting any of the Property of any of them before any Governmental Authority that (i) questions or challenges the validity or enforceability of any of the Loan Documents or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim or claims in an aggregate amount greater than $5,000,000, (iii) which, individually or in the aggregate, if adversely determined, could reasonably be likely to have a Material Adverse Effect, or (iv) requires filing with the Securities and Exchange Commission in accordance with the 1934 Act or any rules thereunder. 6.05 No Breach. Neither (a) the execution and delivery of the Loan Documents nor (b) the consummation of the transactions therein contemplated in compliance with the terms and provisions thereof will conflict with or result in a breach of the articles of incorporation or by-laws of CT or the articles of organization or operating agreement of Fund I, or any applicable law, rule or regulation, or any order, writ, injunction or decree of any Governmental Authority, or any Servicing Agreement or other material agreement or instrument to which either Borrower or any of their respective Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such material agreement or instrument or result in the creation or imposition of any Lien (except for the Liens created pursuant to this Loan Agreement) upon any Property of either Borrower or any of its respective Subsidiaries pursuant to the terms of any such agreement or instrument. 6.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority or any securities exchange are necessary for the execution, delivery or performance by Borrowers of the Loan Documents or for the legality, validity or enforceability thereof, except for filings and recordings in respect of the Liens created pursuant to this Loan Agreement. 6.07 Use of Proceeds; Margin Regulations. Neither the making of any Loan hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with any provisions of Regulation T, U or X. In addition, no part of the proceeds of any Loan will be used, whether directly, indirectly, immediately, incidentally or ultimately (i) to purchase or carry any "margin stock" within the meaning of Regulation U or to refund indebtedness originally incurred for such purpose, or (ii) for any purpose which entails a violation of, or is inconsistent with, such Regulation U or any other regulations of the Board of Governors of the Federal Reserve System, or (iii) for any purposes prohibited by any applicable law, order, rule, regulation, ordinance or similar code or restriction. If requested by Lender, the Borrower, any applicable Affiliate or Subsidiary of Borrower and the recipient of any portion of the proceeds all or any portion of any Loan shall furnish to Lender a statement on Federal Reserve Form G-3 referred to in Regulation U. 6.08 Taxes. Borrowers and their consolidated Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by any of them, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided. The charges, accruals and reserves on the books of Borrowers and their consolidated Subsidiaries in respect of taxes and other governmental charges are, in the opinion of Borrowers, adequate. 6.09 Investment Company Act. Neither CT, Fund I, CT-F1 nor any of their respective Subsidiaries is an "investment company", or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6.10 Collateral; Collateral Security. -32- (a) Borrowers have not assigned, pledged, or otherwise conveyed or encumbered any Collateral to any other Person, and immediately prior to the pledge of such Collateral to Lender, unless otherwise approved by Lender in writing, CT or Fund I, as the case may be, was the sole owner of such Collateral and had good and marketable title thereto, free and clear of all Liens, in each case except for Liens to be released simultaneously with the Liens granted in favor of Lender hereunder. No Collateral pledged to Lender hereunder was acquired by either Borrower from an Affiliate of either Borrower unless otherwise approved by Lender in writing. (b) The provisions of this Loan Agreement are effective to create in favor of Lender a valid security interest in all right, title and interest of Borrowers in, to and under the Collateral. (c) (i) Upon (x) receipt by Custodian of each Mortgage Note evidencing a Mortgage Loan, endorsed in blank by a duly authorized officer of the applicable Borrower, (y) the recordation of the mortgage to Lender securing such Mortgage Loan and an assignment of such mortgage and (z) the filing of a UCC financing statement with respect to such assignment of mortgage, Lender shall have a fully perfected first priority security interest therein, subject only to prior liens and encumbrances permitted by Lender, in the Mortgage Loan evidenced thereby and in such Borrower's interest in the related Property. (ii) Upon (x) receipt by Custodian of each note evidencing a Mezzanine Loan, endorsed in blank by a duly authorized officer of the applicable Borrower, (y) the delivery of a duly executed pledge to such Borrower of direct or indirect beneficial interests in the underlying property and the filing of UCC financing statements with respect thereto, and (z) the delivery by such Borrower of a duly executed pledge of such pledged interests and the filing of UCC assignment statements with respect thereto, Lender shall have a fully perfected first priority security interest therein, in the Mezzanine Loan evidenced thereby, and in such Borrower's interest in the related Property. (iii) Upon (i) the delivery to Lender or its designee of CMBS or other items of Collateral constituting securities (as defined in Article 8 of the Uniform Commercial Code) in accordance with Section 5.02 hereof and (ii) the filing of UCC financing statements naming Lender as "Secured Party" and either Borrower as "Debtor", and describing the Collateral, in the jurisdictions and recording offices for which security interests may be perfected in the Collateral by the filing of UCC financing statements, the security interests granted hereunder in the Collateral will constitute fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of such Borrower in, to and under such Collateral, and, without limiting the foregoing, Lender will have a "securities entitlement" (as defined in Article 8 of the Uniform Commercial Code) in the Collateral referenced in the foregoing clause (i). (iv) As to all other Collateral (including, but not limited to, a B Note), upon receipt by Custodian of all documents set forth in Lender's notice to the applicable Borrower pursuant to Section 2.03(c) hereof, Lender shall have a fully perfected first priority security interest therein and in such Borrower's interest in the related Property. (d) Upon the filing of UCC financing statements naming Lender as "Secured Party" and the applicable Borrower as "Debtor", and describing the Collateral, in the jurisdictions and recording offices for which security interests may be perfected in the Collateral by the filing of UCC financing statements, the security interests granted hereunder in the Collateral will constitute fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of such Borrower in, to and under such Collateral which can be perfected by filing under the Uniform Commercial Code. -33- 6.11 Chief Executive Office. Borrowers' chief executive office on the Effective Date is located at 410 Park Avenue, 14th Floor, New York, New York 10022. 6.12 Location of Books and Records. The location where Borrowers keep their books and records, including all computer tapes and records relating to the Collateral is CT's chief executive office. 6.13 True and Complete Disclosure. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of Borrowers to Lender in connection with the negotiation, preparation or delivery of this Loan Agreement and the other Loan Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole, (x) do not contain any untrue statement of material fact and (y) contain all statements of material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, true. All written information furnished after the date hereof by or on behalf of Borrowers to Lender in connection with this Loan Agreement and the other Loan Documents and the transactions contemplated hereby and thereby, will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to the actual knowledge of a Responsible Officer of Borrowers, after due inquiry, that could reasonably be expected to have a Material Adverse Effect that has not been disclosed herein, in the other Loan Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to Lender for use in connection with the transactions contemplated hereby or thereby. 6.14 Tangible Net Worth. On the date hereof, Tangible Net Worth is not less than the sum of (i) $60,000,000, plus (ii) an amount equal to 75% of Equity Proceeds. 6.15 ERISA. Each Plan to which either Borrower or its Subsidiaries make direct contributions, and, to the knowledge of Borrowers, each other Plan and each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law. No event or condition has occurred and is continuing as to which Borrowers would be under an obligation to furnish a report to Lender under Section 7.01(e) hereof assuming a request therefor has been made by Lender. Section 7. Covenants of Borrowers. Borrowers covenant and agree with Lender that, so long as any Loan is outstanding and until payment in full of all Secured Obligations: 7.01 Financial Statements, Reports, etc. CT shall deliver to Lender all publicly filed financial information when and to the extent available to the general public. In addition to such public financial information, CT shall also provide the following financial information: (a) the Monthly Statement; (b) as soon as available and in any event within forty-five (45) days after the end of each of the first three quarterly fiscal periods of each fiscal year of CT, a status report with respect to such period which describes the cumulative sources and uses of the funds for the immediately preceding calendar quarter on each asset pledged under this Loan Agreement and a detailed report in a form reasonably satisfactory to Lender, together with the unaudited, consolidated balance sheets of CT and its consolidated Subsidiaries as at the end of such period, and the related unaudited, consolidated statements of income and retained earnings and of cash flows for CT and its consolidated Subsidiaries for such period and the portion of the fiscal year through the end of such period, setting forth in each case in comparative form the figures for the previous year, accompanied by a certificate of a Responsible Officer of CT, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of CT and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); -34- (c) as soon as available and in any event within ninety (90) days after the end of each fiscal year of CT, the consolidated balance sheets of CT and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for CT and its consolidated Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not be qualified as to scope of audit or going concern and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of CT and its consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default or Event of Default; (d) within forty-five (45) days following the end of each quarter, or within ninety (90) days following the end of each fiscal year, as the case may be, a certificate from a Responsible Officer of CT in form and substance reasonably satisfactory to Lender that CT and Fund I during such fiscal period or year have observed or performed all of their respective covenants and other agreements, and satisfied every condition, contained in this Loan Agreement and the other Loan Documents to be observed, performed or satisfied by them, and that there has been no Event of Default and no Material Adverse Effect; (e) within fifteen (15) Business Days after Lender's request, such further information with respect to the operation of any real property, the Collateral, the financial affairs of either Borrower and any Plan and Multiemployer Plan as may be requested by Lender, including all business plans prepared by or for either Borrower; provided, however, that with respect to information not previously known to, or in the possession of, CT relating to any Multiemployer Plan, CT shall only be required to provide such information as may be obtained through good faith efforts; (f) upon Lender's request, a copy of any financial or other report either Borrower shall receive from any underlying obligor with respect to an item of Collateral within fifteen (15) days after such Borrower's receipt thereof; and (g) such other reports as Lender shall reasonably require. 7.02 Litigation. Borrowers will promptly, and in any event within 10 days after service of process on any of the following, give to Lender notice of all litigation, actions suits, arbitrations, investigations (including, without limitation, any of the foregoing which are pending or threatened) or other legal or arbitrable proceedings affecting either Borrower or any of their respective Subsidiaries or affecting any of the Property of any of them before any Governmental Authority that (i) questions or challenges the validity or enforceability of any of the Loan Documents or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim or claims in an aggregate amount greater than $1,000,000, or (iii) which, individually or in the aggregate, if adversely determined could reasonably be likely to have a Material Adverse Effect. 7.03 Existence, etc. Each Borrower will: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (provided that nothing in this Section 7.03(a) shall prohibit any transaction expressly permitted under Section 7.04 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of Governmental Authorities (including, without limitation, all environmental laws) if failure to comply with such requirements would be reasonably likely (either individually or in the aggregate) to have a Material Adverse Effect on its Property, business or financial condition, or prospects; (c) keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied; -35- (d) not move its chief executive office from the address referred to in Section 6.11 unless it shall have provided Lender 10 days' prior written notice of such change; (e) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; and (f) permit representatives of Lender, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by Lender. 7.04 Prohibition of Fundamental Changes. Neither Borrower shall enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution) or sell all or substantially all of its assets; provided, that either Borrower may enter into a merger or consolidation if (a) the surviving or resulting entity shall be a corporation or partnership organized under the laws of the United States or any state thereof; (b) such entity shall expressly assume by written agreement, in form and substance satisfactory to Lender in Lender's sole discretion, the performance of all of such Borrower's duties and obligations under this Loan Agreement, the Note and the Loan Documents; and (c) such entity shall be at least as creditworthy as the affected Borrower, as determined by Lender in Lender's sole and absolute discretion; and, provided, further, that if after giving effect thereto, no Default would exist hereunder. Notwithstanding the foregoing, neither Borrower shall enter into or be subject to any transaction, and no direct or indirect change in the ownership structure of either Borrower shall occur (whether or not within such Borrower's control), if as a result thereof: (a) either John R. Klopp and Samuel Zell would no longer retain his respective present or comparable or more senior offices (President and Chief Executive Officer; and Chairman of the Board, respectively) and directorships in CT, or (b) in Lender's judgment, such individuals would no longer collectively retain effective control of Borrowers' business and operations. Anything in this Agreement to the contrary notwithstanding, one hundred percent of the legal and beneficial membership interests in Fund I shall at all times be owned by CT-F1, and one hundred percent of the legal and beneficial membership interests in CT-F1 shall at all times be owned by CT. 7.05 Borrowing Base Deficiency. If at any time there exists a Borrowing Base Deficiency, Borrowers shall cure same in accordance with Section 2.04 hereof. 7.06 Notices. CT, on behalf of Borrowers, shall give notice to Lender: (a) promptly upon receipt by either Borrower of notice or knowledge of the occurrence of any Default or Event of Default; (b) with respect to any Collateral pledged to Lender hereunder, immediately upon receipt by either Borrower of any principal payment (in full or partial) or payment in respect of an Equity Interest; (c) with respect to any Collateral pledged to Lender hereunder, immediately upon receipt by either Borrower of notice or knowledge that the underlying Property has been damaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, or otherwise damaged so as to affect adversely the Asset Value of such pledged Collateral; (d) promptly upon receipt of notice or knowledge by either Borrower of (i) any default related to any Collateral unless otherwise specifically approved by Lender in writing, (ii) any Lien or security interest (other than security interests created hereby or by the other Loan Documents) on, or claim asserted against, any of the Collateral, (iii) any event or change in circumstances has or could reasonably be expected to have an adverse affect on the Collateral Value of the Collateral for a Loan or (iv) any event or change in circumstances which could reasonably be expected to have a Material Adverse Effect; -36- (e) with respect to any item of Collateral pledged to Lender hereunder, promptly upon either Borrower entering into a modification of any documents pertaining to such item of Collateral which would have a material adverse effect on such item of Collateral; and (f) with respect to any Collateral pledged to Lender hereunder, immediately upon the acquisition or receipt by either Borrower or any Affiliate of such Borrower of any interest of any kind in respect of such Collateral which interest has not been pledged to Lender as Collateral under this Loan Agreement. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of CT setting forth details of the occurrence referred to therein and stating what action such Borrower has taken or proposes to take with respect thereto. 7.07 Reports. CT shall provide Lender with a quarterly report, which report shall include, among other items, a summary of each Borrower's delinquency and loss experience with respect to any Collateral serviced by such Borrower, any Servicer or any designee of either, plus any such additional reports as Lender may reasonably request with respect to either Borrower's or any Servicer's servicing portfolio or pending originations of Collateral. 7.08 Transactions with Affiliates. Neither Borrower will, except as approved by Lender in writing, enter into any transaction in any manner relating to any item of Collateral hereunder, including without limitation any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate; provided, however, that Lender may consider for approval any such transaction which is (a) otherwise permitted under this Loan Agreement, (b) in the ordinary course of such Borrower's business and (c) upon fair and reasonable terms no less favorable to such Borrower than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate, or make a payment under such transactions that is not otherwise permitted by this Section 7.08 to any Affiliate. Except as otherwise provided in this Section 7.08, in no event shall either Borrower pledge to Lender hereunder any items of Collateral acquired by such Borrower from an Affiliate of such Borrower. 7.9 Foreclosure or Other Remediation by Borrowers. Either Borrower may propose, and Lender will consider but shall be under no obligation to approve, strategies for the foreclosure or other realization upon the security for underlying loans held by such Borrower relating to items of Collateral hereunder. 7.10 Limitation on Liens. Borrowers will defend the Collateral against, and will take such other action as is necessary to remove, any Lien, security interest or claim on or to the Collateral, other than the security interests created, or otherwise specifically permitted in writing by Lender under this Loan Agreement, and Borrowers will defend the right, title and interest of Lender in and to any of the Collateral against the claims and demands of all persons whomsoever. Either Borrower may request from time to time, subject to Lender's approval in Lender's sole determination, to sell participation interests in its interests in items of Collateral, the sale of which participation interests shall be arm's length transactions and subject to such terms and conditions as Lender in its sole discretion shall require. 7.11 Limitation on Distributions. After the occurrence and during the continuation of any Event of Default, Borrowers shall not make any payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity or partnership interest of either Borrower, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of either Borrower. 7.12 Maintenance of Tangible Net Worth. CT shall not permit Tangible Net Worth at any time to be less than the sum of (i) $60,000,000 plus (ii) an amount equal to 75% of Equity Proceeds. 7.13 Maintenance of Ratio of Earnings Before Interest, Taxes, Depreciation and Amortization to Interest and Preferred Dividends. CT shall not permit the ratio of (a) earnings before -37- interest, taxes, depreciation and amortization (excluding dividends) of CT and its consolidated Subsidiaries to (b) the sum of (i) interest expense and (ii) preferred dividends of CT and its consolidated Subsidiaries, to be less than 1.20:1. 7.14 Maintenance of Ratio of Total Indebtedness to Tangible Net Worth. CT shall not permit the ratio of (a) Total Indebtedness to (b) Tangible Net Worth at any time to be greater than 5:1. Lender may consider waiving the foregoing requirement under certain circumstances if requested by CT; however, Lender shall be under no obligation to do so. 7.15 Servicer; Servicing Tape. CT shall provide to Lender on the fifteenth (15th) calendar day of each month, or if such day is not a Business Day then on the first Business Day immediately following such day, a computer readable file containing servicing information, including without limitation those fields specified by Lender from time to time, on a loan-by-loan basis and in the aggregate, with respect to the Mortgage Loans, Mezzanine Loans, B Notes and Equity Interests serviced hereunder by either Borrower or any Servicer. Borrowers shall not cause any Collateral to be serviced by any servicer other than a servicer expressly approved in writing by Lender. 7.16 Remittance of Prepayments. CT shall remit, with sufficient detail to enable Lender to appropriately identify the Loan, or Loans, to which any amount remitted applies, to Lender on each Business Day all principal prepayments that either Borrower has received during the previous Business Day in an amount equal to the sum of the Asset-Specific Loan Balances being prepaid, together with all interest due thereon through the date of such remittance, any and all charges due with respect to such Loans and any and all costs and expenses incurred by Lender (as provided in this Loan Agreement) in connection with such Loans and the prepayment thereof. Section 8. Events of Default. Each of the following events shall constitute an event of default (an "Event of Default") hereunder: (a) either Borrower shall default in the payment of any principal of or interest on any Loan when due (whether at stated maturity, upon acceleration or at mandatory or optional prepayment); or (b) either Borrower shall default in the payment of any principal of or interest on any MS Indebtedness when due (whether at stated maturity, upon acceleration or at mandatory or optional prepayment); or (c) either Borrower shall default in the payment of any other amount payable by it hereunder or under any other Loan Document after notification by Lender of such default, and such default shall have continued unremedied for seven (7) Business Days; or (d) any representation, warranty or certification made or deemed made herein, or in any other Loan Document by either Borrower or any certificate furnished to Lender pursuant to the provisions hereof or thereof shall prove to have been false or misleading in any material respect as of the time made or furnished (other than the representations and warranties set forth in Section 6 hereof which shall be considered solely for the purpose of Section 2.04(b) hereof; unless such Borrower shall have made any such representations and warranties with knowledge that they were materially false or misleading at the time made); or (e) either Borrower shall fail to comply with the requirements of Section 7.03(a), Section 7.04, Section 7.05, Section 7.06, or Sections 7.08 through 7.16 hereof; or either Borrower shall otherwise fail to comply with the requirements of Section 7.03 hereof and such default shall continue unremedied for a period of ten (10) Business Days; or either Borrower shall fail to observe or perform any other covenant or agreement contained in this Loan Agreement or any other Loan Document and such failure to observe or perform shall continue unremedied for a period of ten (10) Business Days; or (f) a final judgment or judgments for the payment of money in excess of $5,000,000 in the aggregate shall be rendered against either Borrower or any of its Subsidiaries by one or more courts, -38- administrative tribunals or other bodies having jurisdiction and the same shall not be satisfied, discharged (or provision shall not be made for such discharge) or bonded, or a stay of execution thereof shall not be procured, within thirty (30) days from the date of entry thereof, and such Borrower or any such Subsidiary shall not, within said period of thirty (30) days, or such longer period during which execution of the same shall have been stayed or bonded, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (g) either Borrower shall admit in writing its inability to pay its debts as such debts become due; or (h) either Borrower or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator or the like of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate or other action for the purpose of effecting any of the foregoing; or (i) a proceeding or case shall be commenced, without the application or consent of either Borrower or any of its Subsidiaries, in any court of competent jurisdiction, seeking (i) such reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner, liquidator or the like of either Borrower or any such Subsidiary or of all or any substantial part of its property, or (iii) similar relief in respect of either Borrower or any such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of thirty (30) or more days; or an order for relief against either Borrower or any such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (j) the Custodial Agreement or any Loan Document shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by either Borrower; or (k) Either Borrower shall grant, or suffer to exist, any Lien on any Collateral except the Liens contemplated hereby; or the Liens contemplated hereby shall cease to be first priority perfected Liens on the Collateral in favor of Lender or shall be Liens in favor of any Person other than Lender; or (l) Either Borrower or any of either Borrower's Subsidiaries shall be in default under any note, indenture, loan agreement, guaranty, swap agreement or any other contract to which it is a party (other than MS Indebtedness), which default (i) involves the failure to pay a matured obligation, or (ii) permits the acceleration of the maturity of obligations by any other party to or beneficiary of such note, indenture, loan agreement, guaranty, swap agreement or other contract, in any such case in which the amount of such obligation or obligations, in the aggregate, exceed $10,000,000; (m) any materially adverse change in the Property, business, financial condition or prospects of either Borrower or any of its Subsidiaries shall occur, in each case as determined by Lender in its sole discretion, or any other condition shall exist which, in Lender's sole discretion, constitutes a material impairment of either Borrower's ability to perform its obligations under this Loan Agreement, the Note or any other Loan Document; (n) MS & Co.'s corporate bond rating shall have been lowered or downgraded to a rating below A- by S&P or A3 by Moody's and Borrowers shall have failed to repay all amounts owing to -39- Lender under this Agreement, the Note and the other Loan Documents within 90 days following such downgrade; or (o) the matters set forth in the certificates delivered by Borrowers and CT-F1 pursuant to paragraph 5.01(c) shall at any time cease to be true. Section 9. Remedies Upon Default. (a) Upon the occurrence of one or more Events of Default other than those referred to in Section 8(g) or (h), Lender may immediately declare the principal amount of the Loans then outstanding under the Note to be immediately due and payable, together with all interest thereon and fees and expenses accruing under this Loan Agreement. Upon the occurrence of an Event of Default referred to in Sections 8(g) or (h), such amounts shall immediately and automatically become due and payable without any further action by any Person. Upon such declaration or such automatic acceleration, the balance then outstanding on the Note shall become immediately due and payable, without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by Borrowers. (b) Upon the occurrence of one or more Events of Default, Lender shall have the right to obtain physical possession of the Servicing Records and all other files of Borrowers relating to the Collateral and all documents relating to the Collateral which are then or may thereafter come in to the possession of either Borrower or any third party acting for either Borrower and Borrowers shall deliver to Lender such assignments as Lender shall request. Lender shall be entitled to specific performance of all agreements of Borrowers contained in this Loan Agreement. (c) Upon the occurrence of an Event of Default, without limiting any other rights or remedies of Lender, Lender shall have the right to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by or for account of Lender or Lender's Affiliates to any indebtedness at any time owing to Lender to the credit or for the account of Borrowers against any and all of the Indebtedness of Borrowers, irrespective of whether Lender shall have made any demand under this Loan Agreement, the Note, any other Security Document or any other document executed in connection with any other MS Indebtedness. Section 10. No Duty of Lender. The powers conferred on Lender hereunder are solely to protect Lender's interests in the Collateral and shall not impose any duty upon it to exercise any such powers. Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to Borrowers for any act or failure to act hereunder, except for its or their own gross negligence or willful misconduct. Section 11. Miscellaneous. 11.01 Waiver. No failure on the part of Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 11.02 Notices. Except as otherwise expressly permitted by this Loan Agreement, all notices, requests and other communications provided for herein and under the Custodial Agreement (including without limitation any modifications of, or waivers, requests or consents under, this Loan Agreement) shall be given or made in writing (including without limitation by telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or thereof; or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. Except as otherwise provided in this Loan Agreement and except for notices given under Section 2 (which shall be effective only on receipt), all such communications shall be -40- deemed to have been duly given when transmitted by telex or telecopy or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 11.03 Indemnification and Expenses. (a) Borrowers agree to hold Lender, and its Affiliates and their officers, directors, employees, agents and advisors (each an "Indemnified Party") harmless from and indemnify any Indemnified Party against all liabilities, losses, damages, judgments, costs and expenses of any kind which may be imposed on, incurred by or asserted against such Indemnified Party (collectively, the "Costs") relating to or arising out of this Loan Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Loan Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, that, in each case, results from anything other than any Indemnified Party's gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Borrowers agree to hold any Indemnified Party harmless from and indemnify such Indemnified Party against all Costs with respect to all Collateral Loans and Equity Interests relating to or arising out of any violation or alleged violation of any environmental law, rule or regulation or any consumer credit laws, including without limitation the Truth in Lending Act and/or the Real Estate Settlement Procedures Act, that, in each case, results from anything other than such Indemnified Party's gross negligence or willful misconduct. In any suit, proceeding or action brought by an Indemnified Party in connection with any Collateral for any sum owing thereunder, or to enforce any provisions of any Collateral Documents, Borrowers will save, indemnify and hold such Indemnified Party harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by either Borrower of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from either Borrower. Borrowers also agree to reimburse an Indemnified Party as and when billed by such Indemnified Party for all such Indemnified Party's costs and expenses incurred in connection with the enforcement or the preservation of such Indemnified Party's rights under this Loan Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, including without limitation the reasonable fees and disbursements of its counsel. Borrowers hereby acknowledge that, notwithstanding the fact that the Note is secured by the Collateral, the obligation of Borrowers under the Note is a recourse obligation of the Borrowers. (b) Borrowers agree to pay as and when billed by Lender all of the out-of-pocket costs and expenses incurred by Lender in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Loan Agreement, the Note, any other Loan Document or any other documents prepared in connection herewith or therewith. Borrowers agree to pay as and when billed by Lender all of the out-of-pocket costs and expenses incurred in connection with the consummation and administration of the transactions contemplated hereby and thereby including without limitation (i) all the reasonable fees, disbursements and expenses of counsel to Lender and (ii) all the due diligence, inspection, testing and review costs and expenses incurred by Lender with respect to Collateral under this Loan Agreement, including, but not limited to, those costs and expenses incurred by Lender pursuant to Sections 11.03(a), 11.14 and 11.15 hereof. 11.04 Amendments. Except as otherwise expressly provided in this Loan Agreement, any provision of this Loan Agreement may be modified or supplemented only by an instrument in writing signed by Borrowers and Lender and any provision of this Loan Agreement may be waived by Lender. 11.05 Successors and Assigns. This Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 11.06 Survival. The obligations of Borrowers under Sections 3.03 and 11.03 hereof shall survive the repayment of the Loans and the termination of this Loan Agreement. In addition, each representation and warranty made or deemed to be made by a request for a borrowing, herein or pursuant hereto shall survive the making of such representation and warranty, and Lender shall not be deemed to have waived, by reason of making any Loan, any Default that may arise because any such representation -41- or warranty shall have proved to be false or misleading, notwithstanding that Lender may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such Loan was made. 11.07 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Loan Agreement. 11.08 Counterparts. This Loan Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Loan Agreement by signing any such counterpart. 11.09 Loan Agreement Constitutes Security Agreement; Governing Law. This Loan Agreement shall be governed by New York law without reference to choice of law doctrine, and shall constitute a security agreement within the meaning of the Uniform Commercial Code. 11.10 SUBMISSION TO JURISDICTION; WAIVERS. EACH BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH LENDER SHALL HAVE BEEN NOTIFIED; AND (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. 11.11 WAIVER OF JURY TRIAL. EACH BORROWER AND LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. -42- 11.12 Acknowledgments. Borrowers hereby acknowledge that: (a) they have been advised by counsel in the negotiation, execution and delivery of this Loan Agreement, the Note and the other Loan Documents; (b) Lender has no fiduciary relationship to Borrowers, and the relationship between Borrowers and Lender is solely that of debtor and creditor; and (c) no joint venture exists between Lender and Borrowers. 11.13 Hypothecation or Pledge of Loans. Lender shall have free and unrestricted use of all Collateral and nothing in this Loan Agreement shall preclude Lender from engaging in repurchase transactions with the Collateral or otherwise pledging, repledging, transferring, hypothecating, or rehypothecating the Collateral or pledging or otherwise transferring its rights to payment hereunder in respect of any Loan made hereunder; provided, that no action by Lender referred to in this sentence shall confer on any Person other than Lender any right against Borrowers to require any prepayment under Section 2.04 hereof or any right to enforce against Borrowers any other provision of this Loan Agreement, but may grant to any Person the right to require Lender to enforce any such provisions. Nothing contained in this Loan Agreement shall obligate Lender to segregate any Collateral delivered to Lender by Borrowers. 11.14 Servicing. (a) Borrowers covenant to maintain or cause the servicing of the Collateral to be maintained with respect to each type of Collateral pledged to Lender hereunder in conformity with accepted and prudent servicing practices in the industry for such same type of Collateral and in a manner at least equal in quality to the servicing Borrowers provide for assets similar to such Collateral which it owns. In the event that the preceding language is interpreted as constituting one or more servicing contracts, each such servicing contract shall terminate automatically upon the earliest of (i) an Event of Default, (ii) the date on which all the Secured Obligations have been paid in full or (iii) the transfer of servicing approved by Borrowers and Lender, Lender's consent to which shall not be unreasonably withheld. Midland Loan Services, Inc. ("Midland")shall be the initial servicer. (b) If the Collateral, or any portion thereof, is serviced by either Borrower, (i) Borrowers agree that Lender is the collateral assignee of all servicing records, including but not limited to any and all servicing agreements, files, documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of such Collateral (the "Servicing Records"), and (ii) Borrowers grant Lender a security interest in all servicing fees and rights relating to such Collateral and all Servicing Records to secure the obligation of either Borrower or its designee to service in conformity with this Section and any other obligation of Borrowers to Lender. Borrowers covenant to safeguard such Servicing Records and to deliver them promptly to Lender or its designee (including Custodian) at Lender's request. (c) If the Collateral, or any portion thereof, is serviced by a third party servicer (such third party servicer, the "Servicer"), Borrowers (i) shall provide a copy of the servicing agreement to Lender, which shall be in form and substance acceptable to Lender (the "Servicing Agreement"); and (ii) hereby irrevocably assign to Lender and Lender's successors and assigns all right, title, interest of Borrowers in, to and under, and the benefits of, any Servicing Agreement with respect to such Collateral. Any successor to the Servicer shall be approved in writing by Lender prior to such successor's assumption of servicing obligations with respect to such Collateral. (d) Each Borrower shall provide to Lender a letter from the applicable Borrower (if such Borrower is the Servicer) or the Servicer, as the case may be, to the effect that upon the occurrence of an Event of Default, Lender may terminate any Servicing Agreement and transfer servicing to its designee, -43- at no cost or expense to Lender, it being agreed that Borrowers will pay any and all fees required to terminate the Servicing Agreement and to effectuate the transfer of servicing to the designee of Lender. (e) After the Funding Date, until the pledge of any Collateral is relinquished by Custodian, Borrowers will have no right to modify or alter the terms of any of the documents pertaining to such Collateral and Borrowers will have no obligation or right to repossess such Collateral or substitute other Collateral, except as provided in the Custodial Agreement; provided, however, that so long as no Default or Event of Default has occurred and is continuing, Borrowers may enter into such modifications of the terms of such documents as do not, as to any individual item of Collateral, (i) result in a negative monetary effect or (ii) constitute a material adverse effect. (f) In the event either Borrower or its Affiliate is servicing any Collateral, such Borrower shall permit Lender to inspect such Borrower's or its Affiliate's servicing facilities, as the case may be, for the purpose of satisfying Lender that such Borrower or its Affiliate, as the case may be, has the ability to service such Collateral as provided in this Loan Agreement. (g) Borrowers shall cause the Servicer to provide a copy of each report and notice sent to either Borrower to be sent to Lender concurrently therewith. 11.15 Periodic Due Diligence Review. Borrowers acknowledge that Lender has the right to perform continuing due diligence reviews with respect to the Collateral, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or determining and re-determining the Borrowing Base under Section 2.04(a) hereof, or otherwise, and Borrowers agree that Lender, at its option, has the right at any time to conduct a partial or complete due diligence review on any or all of the Collateral securing the Loans, including, without limitation, ordering new credit reports and Appraisals on the applicable Collateral and otherwise regenerating the information used to originate such Eligible Collateral. Upon reasonable (but no less than one (1) Business Day) prior notice to Borrowers, Lender or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Collateral Files and any and all documents, records, agreements, instruments or information relating to such Collateral in the possession or under the control of either Borrower and/or Custodian. Borrowers also shall make available to Lender a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Collateral Files and the Collateral. Borrowers agree to cooperate with Lender and any third party underwriter designated by Lender in connection with such underwriting, including, but not limited to, providing Lender and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Collateral in the possession, or under the control, of either Borrower. Borrowers further agree that Borrowers shall reimburse Lender for any and all out-of-pocket costs and expenses incurred by Lender in connection with Lender's activities pursuant to this Section 11.15. 11.16 Intent. The parties recognize that each Loan is a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended. 11.17 Change of Borrowers' States of Formation. If either Borrower shall change the State under whose laws such Borrower shall be organized, such Borrower shall promptly provide Lender with a copy of its new articles of organization, articles of incorporation or similar document, certified by the Secretary of State or other appropriate official of such Borrower's new state of formation, if applicable, together with such opinions of counsel regarding such change as Lender, in its sole discretion, shall require. 11.18 Set-Off. In addition to any rights and remedies of Lender provided by this Loan Agreement and by law, Lender shall have the right, without prior notice to Borrowers, any such notice being expressly waived by Borrowers to the extent permitted by applicable law, upon any amount becoming due and payable by Borrowers hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or -44- special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Lender or any Affiliate thereof to or for the credit or the account of Borrowers. Lender agrees promptly to notify Borrowers after any such set-off and application made by Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. 11.19 Special Purpose Entity. Fund I shall: (a) not own any assets nor engage in any business other than owning the assets and engaging in the transactions permitted by its organizational documents; (b) except for a $150,000,000 term redeemable securities contract between Fund I and Deutsche Bank, AG New York Branch, other mortgage warehousing and/or mortgage/mezzanine warehousing credit facilities similar to the instant facility, purchase money financial credit facilities and other debt incurred in the ordinary course of business (in each case unless (i) in contravention of any representation or warranty set forth in Sections 6.05, 6.10 or 6.13 hereof or any covenant set forth in Sections 7.08 or 7.10 through 7.14 hereof, or (ii) resulting in a default under Sections 8(e), 8(k), 8(l), 8(m) or 8(o) hereof)), not incur any indebtedness or obligation, secured or unsecured, direct or indirect, absolute or contingent (including any guarantee thereof), other than pursuant hereto; (c) not acquire obligations or securities of any of its Affiliates; (d) pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) only from its own assets; (e) comply with the provisions of its organizational documents; (f) do all things necessary to observe organizational formalities and to preserve its existence, and will not materially amend, modify or otherwise change its organizational documents, or suffer same to be amended, modified or otherwise changed without the prior written consent of Lender which shall not be unreasonably withheld; (g) maintain all of its books, records, financial statements and bank accounts separate from those of its Affiliates; (h) be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other entity (including any of its Affiliates), shall correct any known misunderstanding regarding its status as a separate entity, shall conduct business in its own name, shall not identify itself or any of its Affiliates as a division or part of the other and shall maintain and utilize separate stationary, invoices and checks; (i) maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (j) not engage in or suffer any change of ownership, dissolution, winding up, liquidation, consolidation or merger in whole or in part; (k) not commingle its funds or other assets with those of any of its Affiliates or any other Person; (l) maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any of its Affiliates or any other Person; and (m) cause each of its direct and indirect owners to agree not to (i) file or consent to the filing of any bankruptcy, insolvency or reorganization case or proceeding with respect to either Borrower; institute any proceedings under any applicable insolvency law or otherwise seek any relief under any laws relating to the relief from debts or the protection of debtors generally with respect to either Borrower, (ii) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequester, custodian or any similar official for either Borrower or a substantial portion of its properties, or (iii) make any assignment for the benefit of either Borrower's creditors. 11.20 Joint and Several Liability. The obligations of the Borrowers under this Loan Agreement and the Loan Documents shall be joint and several. 11.21 Morgan Stanley Downgrade. In the event (a) MS & Co.'s corporate bond rating as calculated by S&P or Moody's shall have been lowered or downgraded to a rating below A- as indicated by S&P or below A3 as indicated by Moody's and (b) Borrowers shall have repaid all amounts owing to Lender under this Agreement within ninety (90) days following such downgrade, Borrowers' obligation under Section 3.01(f) hereof to pay a Minimum Usage Fee shall terminate effective as of the date of such repayment in full, and Lender shall refund to Borrowers a portion of the fee paid to Lender pursuant to Section 5.01(a)(ii) hereof in an amount equal to the product of (1) such fee multiplied by (2) the quotient of (x) the number of days remaining from the date of such repayment in full to, and including, the Termination Date divided by (y) the number of days from and after the date hereof to, and including, the Termination Date. -45- SIGNATURE PAGE FOLLOWS -46- WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed and delivered as of the day and year first above written. BORROWERS --------- CAPITAL TRUST, INC. By:/s/ Brian H. Oswald ----------------------------------- Name: Brian H. Oswald Title: Chief Financial Officer Address for Notices: -------------------- 410 Park Avenue, 14th Floor New York, New York 10022 Attention: Geoffrey Jervis Telecopier No.: (212) 655-0044 Telephone No.: (212) 655-0247 With a copy to: Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, New York 10022 Attention: Robert J. Grados, Esq. Telecopier No.: (212) 230-7830 Telephone No.: (212) 318-6923 CT MEZZANINE PARTNERS I LLC By:/s/ Brian H. Oswald ------------------------------------- Name: Brian H. Oswald Title: Chief Financial Officer Address for Notices: -------------------- 410 Park Avenue, 14th Floor New York, New York 10022 Attention: Geoffrey Jervis Telecopier No.: (212) 655-0044 Telephone No.: (212) 655-0247 With a copy to: Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, New York 10022 Attention: Robert J. Grados, Esq. Telecopier No.: (212) 230-7830 Telephone No.: (212) 318-6923 -47- LENDER ------ MORGAN STANLEY MORTGAGE CAPITAL INC. By:/s/ Andrew B. Neuberger ------------------------------------- Name: Andrew B. Neuberger Title: Vice President Address for Notices: -------------------- 1221 Avenue of the Americas, 27th Floor New York, New York 10020 Attention: Mr. Andrew Neuberger Telecopier No.: 212-762-9495 Telephone No.: 212-762-6401 With a copy to: Clifford Chance US LLP 200 Park Avenue New York, New York 10166-0153 Attention: Frederick B. Utley, III, Esq. Telecopier No.: (212) 878-8375 Telephone No.: (212) 878-8356 -48- SCHEDULE 1 FILING JURISDICTIONS AND OFFICES Maryland Secretary of State (CT) Delaware Secretary of State (Fund I) S-1 SCHEDULE 2 APPROVED APPRAISERS 1. KTR Appraisal Services 2. Cushman & Wakefield, Inc. 3. CB Richard Ellis 4. The Weitzman Group 5. Greenwich Group 6. Joseph Blake 7. Grubb & Ellis 8. HVS International 9. PWC S-2 SCHEDULE 3 APPROVED ENGINEERS 1. EMG 2. KTR Realty Services 3. Merritt & Harris, Inc. 4. C.A. Rich, Inc. 5. IVI 6. Dames & Moore 7. Law Environmental 8. Eckland 9. EM&CA 10. Acqua Terra 11. ATC (BCM Engineers) 12. Horn Chandler & Thomas 13. National Assessment Corporation 14. Property Solutions Inc. 15. PSI 16. Aaron & Wright S-3 SCHEDULE 4 APPROVED ENVIRONMENTAL CONSULTANTS 1. Acqua Terra 2. Law Environmental 3. KTR Realty Services 4. EMG 5. Clayton 6. Dames & Moore 7. Brown & Root 8. C.A. Rich, Inc. 9. Eckland 10. EM&CA 11. ATC (BCM Engineers) 12. Front Royal 13. IVI 14. Aaron & Wright 15. Certified Environmental Inc. 16. Environ Business, Inc. 17. Property Solutions, Inc. 18. PSI 19. National Assessment Corporation 20. Hillman Environmental Group S-4 SCHEDULE 5 EXISTING CT COLLATERAL A. "135 EAST 57th STREET" ASSET ------------------------------- All "Collateral" as defined and described in that certain Pledge and Security Agreement and in that certain General Collateral Assignment, each dated as of March 30, 1999 made by Capital Trust, Inc. to Morgan Stanley Mortgage Capital Inc., including, without limitation, that certain Mezzanine Loan Agreement dated as of December 11, 1997 between 135 East 57th Street Holdings LLC and Credit Suisse First Boston Mortgage Capital, Inc. (predecessor-in-interest to Capital Trust, Inc.), as mezzanine lender and the loan documents described therein. B. "805 THIRD AVENUE" ASSET --------------------------- All "Collateral" as defined and described in that certain Pledge and Security Agreement and in that certain General Collateral Assignment, each dated as of June 15, 1998 made by Capital Trust to Morgan Stanley Mortgage Capital Inc., including, without limitation, that certain Loan Agreement dated as of June 15, 1998 between Madison Third Building Companies Mezz LLC and Capital Trust, as mezzanine lender and the loan documents described therein. All "Collateral" as defined and described in that certain Pledge and Security Agreement (Stock & Special Member Interest) dated as of June 15, 1998 made by Capital Trust to Morgan Stanley Mortgage Capital Inc., including, without limitation, the Pledged Stock and the Pledged Membership Interests and the Proceeds thereof, as defined therein. S-5 SCHEDULE 6 EXISTING FUND I COLLATERAL A. "FISHER BROTHERS" ASSET -------------------------- All "Collateral" as defined and described in that certain Pledge and Security Agreement (Fisher Brothers-Mezzanine Loan) dated as of December 29, 2000 as amended by First Amendment to Pledge and Security Agreement (Fisher Brothers-Mezzanine Loan) dated as of November 28, 2001, and in that certain General Collateral Assignment ( Fisher Brothers-Mezzanine Loan) dated as of December 29, 2000 as amended by First Amendment to General Collateral Assignment (Fisher Brothers-Mezzanine Loan) dated as of November 28, 2001 made by CT Mezzanine Partners I LLC to Morgan Stanley Dean Witter Mortgage Capital Inc., including, without limitation, that certain Mezzanine Loan Agreement dated as of October 26, 2000, as amended, between FGSB Mezzanine Limited Partnership and BH Mezzanine Limited Partnership and Capital Trust (successor-by-assignment to Secore Financial Corporation), as mezzanine lender and the loan documents described therein. B. "EL CONQUISTADOR" ASSET -------------------------- All "Collateral" as defined and described in that certain Pledge and Security Agreement (El Conquistador) and in that certain General Collateral Assignment (El Conquistador), each dated as of September 19, 2000 made by CT Mezzanine Partners I LLC to Morgan Stanley Dean Witter Mortgage Capital Inc., including, without limitation, that certain Mezzanine Loan Agreement dated as of June 30, 2000, made by Conquistador Mezzanine (SPE) Inc. in favor of CT Mezzanine Partners I LLC (successor-by-assignment to Bear Stearns Funding Inc.) as mezzanine lender and the loan documents described therein. S-6 EXHIBIT A --------- [FORM OF THIRD AMENDED AND RESTATED PROMISSORY NOTE] $ 150,000,000 June 8, 1998 New York, New York FOR VALUE RECEIVED, CAPITAL TRUST, INC., a Maryland corporation and CT MEZZANINE PARTNERS I LLC, a Delaware limited liability company (collectively, the "Borrowers"), hereby jointly and severally promise to pay to the order of MORGAN STANLEY MORTGAGE CAPITAL INC. (the "Lender"), at the principal office of Lender at 1221 Avenue of the Americas, 27th floor, New York, New York 10020, in lawful money of the United States, and in immediately available funds, the principal sum of ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by Lender to Borrowers under the Loan Agreement), on the dates and in the principal amounts provided in the Loan Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Loan Agreement. The date, amount and interest rate of each Loan made by Lender to Borrowers, and each payment made on account of the principal thereof, shall be recorded by Lender on its books and, prior to any transfer of this Note, endorsed by Lender on the schedule attached hereto or any continuation thereof; provided, that the failure of Lender to make any such recordation or endorsement shall not affect the obligations of Borrowers to make a payment when due of any amount owing under the Loan Agreement or hereunder in respect of the Loans made by Lender. This Note is the Note referred to in the Amended and Restated Master Loan and Security Agreement dated as of June 27, 2003 (as amended, supplemented or otherwise modified and in effect from time to time, the "Loan Agreement") between Borrowers and Lender, and evidences Loans made by Lender thereunder. Terms used but not defined in this Note have the respective meanings assigned to them in the Loan Agreement. Borrowers agree to pay all Lender's costs of collection and enforcement (including reasonable attorneys' fees and disbursements of Lender's counsel) in respect of this Note when incurred, including, without limitation, reasonable attorneys' fees through appellate proceedings. Notwithstanding the pledge of the Collateral, Borrowers hereby acknowledge, admit and agree that Borrowers' obligations under this Note are recourse obligations of Borrowers to which Borrowers pledge their full faith and credit. Borrowers, and any endorsers or guarantors hereof, (a) severally waive diligence, presentment, protest and demand and also notice of protest, demand, dishonor and nonpayment of this Note, (b) expressly agree that this Note, or any payment hereunder, may be extended from time to time, and consent to the acceptance of further Collateral, the release of any Collateral for this Note, the release of any party primarily or secondarily liable hereon, and (c) expressly agree that it will not be necessary for Lender, in order to enforce payment of this Note, to first institute or exhaust Lender's remedies against Borrowers or any other party liable hereon or against any Collateral for this Note. No extension of time for the payment of this Note, or any installment hereof, made by agreement by Lender with any person now or hereafter liable for the payment of this Note, shall affect the liability under this Note of A-1 Borrowers, even if Borrowers are not a party to such agreement; provided, however, that Lender and Borrowers, by written agreement between them, may affect the liability of Borrowers. Any reference herein to Lender shall be deemed to include and apply to every subsequent holder of this Note. Reference is made to the Loan Agreement for provisions concerning optional and mandatory prepayments, Collateral, acceleration and other material terms affecting this Note. The obligations of the Borrowers under this Note shall be joint and several. This Note shall be governed by and construed under the laws of the State of New York (without reference to choice of law doctrine) whose laws Borrowers expressly elect to apply to this Note. Borrowers agree that any action or proceeding brought to enforce or arising out of this Note may be commenced in the Supreme Court of the State of New York, County of New York, or in the District Court of the United States for the Southern District of New York. CAPITAL TRUST, INC., a Maryland corporation By: ------------------------------ Name: Brian H. Oswald Title: Chief Financial Officer CT MEZZANINE PARTNERS I LLC, a Delaware limited liability company By: ------------------------------ Name: Brian H. Oswald Title: Chief Financial Officer A-2 SCHEDULE OF LOANS This Third Amended and Restated Promissory Note evidences Loans made under the within-described Loan Agreement to Borrowers, on the dates, in the principal amounts and bearing interest at the rates set forth below, and subject to the payments and prepayments of principal set forth below.
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A-3 EXHIBIT B --------- [FORM OF CUSTODIAL AGREEMENT] B-1 EXHIBIT C --------- [FORM OF OPINION OF COUNSEL OF BORROWERS] C-1 EXHIBIT D --------- [FORM OF REQUEST FOR BORROWING] Amended and Restated Master Loan and Security Agreement, dated as of June 27, 2003 (the "Loan and Security Agreement"), by and between Borrowers and Morgan Stanley Mortgage Capital Inc. (the "Lender"), Lender: Morgan Stanley Mortgage Capital Inc. Borrower: [NAME OF BORROWER] Requested Fund Date: ------------------------------------ Transmission Date: ------------------------------------ Transmission time: ------------------------------------ [Type of Funding: (Wet or Dry) ------------------------------------] [Type of Loan requested: Committed or Uncommitted ------------------------------------] Number of Mortgage Loans to be Pledged: ------------------------------ Unpaid Principal Balance: $ ------------------------------ Requested Wire Amount: $ ------------------------------ Wire Instructions: Requested by: [NAME OF BORROWER] By: --------------------------------- Name: Title: D-1 EXHIBIT E --------- [FORM OF LENDER'S RELEASE LETTER] (Date) Morgan Stanley Mortgage Capital Inc. 1221 Avenue of the Americas New York, New York 10020 Attention: ------------------ Facsimile: ------------------ Re: Certain Collateral Identified on Schedule A hereto and owned by [BORROWER] The undersigned hereby releases all right, interest, lien or claim of any kind with respect to the Collateral described in the attached Schedule A, such release to be effective automatically without any further action by any party upon payment in one or more installments, in immediately available finds of $__________, in accordance with the following wire instructions: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Very truly yours, [LENDER] By: -------------------------------- Name: Title: E-1 EXHIBIT F --------- [FORM OF BAILEE AGREEMENT] [BORROWER'S NAME AND ADDRESS] _______________ __, 20__ Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, New York 10022 Re: Bailee Agreement (the "Bailee Agreement") in connection with the pledge by ____________________ (the "Borrower") to Morgan Stanley Mortgage Capital Inc. (the "Lender") Gentlemen and Mesdames: In consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lender and Paul, Hastings, Janofsky & Walker LLP (the "Bailee") hereby agree as follows: 1. The Borrower shall deliver to the Bailee in connection with any Mortgage Loans delivered to the Bailee hereunder an Identification Certificate in the form of Attachment 1 attached hereto to which shall be attached a Collateral Loan Schedule identifying which Collateral Loans are being delivered to the Bailee hereunder. Such Collateral Loan Schedule shall contain the following fields of information: (a) the loan identifying number; (b) the Collateral Obligor's name; (c) the street address, city, state and zip code for the applicable real property; (d) the original balance; and (e) the current principal balance if different from the original balance. 2. On or prior to the date indicated on the Custodial Identification Certificate delivered by the Borrower (the "Funding Date"), the Borrower shall have delivered to the Bailee, as bailee for hire, the original documents set forth on Schedule A attached hereto (collectively, the "Collateral File") for each of the Collateral Loans (each a "Collateral Loan" and collectively, the "Collateral Loans") listed in Exhibit A to Attachment 1 attached hereto (the "Collateral Loan Schedule"). 3. The Bailee shall issue and deliver to the Lender and the Custodian on or prior to the Funding Date by facsimile (a) in the name of the Lender, an initial trust receipt and certification in the form of Attachment 2 attached hereto (the "Bailee's Trust Receipt and Certification") which Bailee's Trust Receipt and Certification shall state that the Bailee has received the documents comprising the Collateral File as set forth in the Custodial Identification Certificate (as defined in that certain [Amended and Restated] Custodial Agreement dated as of June 27, 2003, among [Borrower], Lender and Custodian (as defined in Section 5 below), in addition to such other documents required to be delivered to Lender and/or Custodian pursuant to the [Amended and Restated] Master Loan and Security Agreement dated as of June 27, 2003, among [Borrower] and Lender (the "Loan Agreement"). 4. On the applicable Funding Date, in the event that the Lender fails to make a Loan to the Borrower secured by the Collateral Loans identified in the related Custodial Identification Certificate, the Lender shall deliver by facsimile to the Bailee at (212) 230-7830 to the attention of Robert J. Grados, Esq., an authorization (the "Facsimile Authorization") to release the Collateral Files with respect to the F-1 Collateral Loans identified therein to the Borrower. Upon receipt of such Facsimile Authorization, the Bailee shall release the Collateral Files to the Borrower in accordance with the Borrower's instructions. 5. Following the Funding Date, the Bailee shall forward the Collateral Files to Deutsche Bank Trust Company Americas, 1761 East St. Andrew Place, Santa Ana, California 92705, Attention: Mortgage Custody-[QT032C - Fund III][MF001C - CT/Fund I] (the "Custodian") by insured overnight courier for receipt by the Custodian no later than 1:00 p.m. on the third Business Day following the applicable Funding Date (the "Delivery Date"). 6. From and after the applicable Funding Date until the time of receipt of the Facsimile Authorization or the applicable Delivery Date, as applicable, the Bailee (a) shall maintain continuous custody and control of the related Collateral Files as bailee for the Lender and (b) is holding the related Collateral Loans as sole and exclusive bailee for the Lender unless and until otherwise instructed in writing by the Lender. 7. The Borrower agrees to indemnify and hold the Bailee and its partners, directors, officers, agents and employees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including reasonable attorney's fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of this Bailee Agreement or any action taken or not taken by it or them hereunder unless such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (other than special, indirect, punitive or consequential damages, which shall in no event be paid by the Bailee) were imposed on, incurred by or asserted against the Bailee because of the breach by the Bailee of its obligations hereunder, which breach was caused by negligence, lack of good faith or willful misconduct on the part of the Bailee or any of its partners, directors, officers, agents or employees. The foregoing indemnification shall survive any resignation or removal of the Bailee or the termination or assignment of this Bailee Agreement. 8. (a) In the event that the Bailee fails to produce a Mortgage Note, assignment of collateral or any other document related to a Collateral Loan that was in its possession within ten (10) business days after required or requested by the Borrower or Lender (a "Delivery Failure"), the Bailee shall indemnify the Borrower or Lender in accordance with the succeeding paragraph of this Section 8. (b) The Bailee agrees to indemnify and hold the Lender and Borrower, and their respective affiliates and designees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including reasonable attorney's fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of a Custodial Delivery Failure or the Bailee's negligence, lack of good faith or willful misconduct. The foregoing indemnification shall survive any termination or assignment of this Bailee Agreement. 9. The Borrower hereby represents, warrants and covenants that the Bailee is not an affiliate of or otherwise controlled by the Borrower. Notwithstanding the foregoing, the parties hereby acknowledge that the Bailee hereunder may act as Counsel to the Borrower in connection with a proposed loan and Paul, Hastings, Janofsky & Walker LLP, if acting as Bailee, has represented [Borrower] in connection with negotiation, execution and delivery of the Loan Agreement. 10. In connection with a pledge of the Collateral Loans as collateral for an obligation of the Lender, the Lender may pledge its interest in the corresponding Collateral Files held by the Bailee for the benefit of the Lender from time to time by delivering written notice to the Bailee that the Lender has pledged its interest in the identified Collateral Loans and Collateral Files, together with the identity of the party to whom the Collateral Loans have been pledged (such party, the "Pledgee"). Upon receipt of such notice from the Lender, the Bailee shall mark its records to reflect the pledge of the Collateral Loans by F-2 the Lender to the Pledgee. The Bailee's records shall reflect the pledge of the Collateral Loans by the Lender to the Pledgee until such time as the Bailee receives written instructions from the Lender that the Collateral Loans are no longer pledged by the Lender to the Pledgee, at which time the Bailee shall change its records to reflect the release of the pledge of the Collateral Loans and that the Bailee is holding the Collateral Loans as custodian for, and for the benefit of, the Lender. 11. From time to time, subject to the acceptance and approval of Lender, Borrower may request pursuant to a request substantially in the form of Annex 5-B to the Custodial Agreement the delivery by the Custodian to the Bailee of some or all of the Collateral File for the purposes set forth in such request, provided that such request shall include an agreement (a "Disposition Agreement") in execution form, among Lender, Borrower and Bailee, providing for the disposition of such Collateral File or portion thereof. Upon receipt of the Collateral File or such portions thereof, Bailee shall hold the same as sole and exclusive bailee for the Lender until such time as the Collateral File, or such portions thereof, are delivered to others in accordance with the fully executed Disposition Agreement, or, if the Disposition Agreement has not been fully executed, as otherwise directed by Lender, subject in either case to the provisions set forth herein governing standards of care and indemnification and except as otherwise provided by any document specifically amending, supplementing or modifying the terms hereof which is executed and delivered by all parties hereto in connection with such delivery of the Collateral File, or such portions thereof, to Bailee. Notwithstanding anything to the contrary contained in this Section 11, Bailee shall have the right to deliver such Collateral File, or portions thereof, to Lender upon five (5) days written notice to Lender. 12. The agreement set forth in this Bailee Agreement may not be modified, amended or altered, except by written instrument, executed by all of the parties hereto. 13. This Bailee Agreement may not be assigned by the Borrower or the Bailee without the prior written consent of the Lender. 14. For the purpose of facilitating the execution of this Bailee Agreement as herein provided and for other purposes, this Bailee Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute and be one and the same instrument. 15. This Bailee Agreement shall be construed in accordance with the laws of the State of New York, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. 16. Capitalized terms used herein and defined herein shall have the meanings ascribed to them in the Loan Agreement. [signatures begin on next page] A-3 Very truly yours, ---------------------------, Borrower By:____________________ Name: Title: ACCEPTED AND AGREED: PAUL, HASTINGS, JANOFSKY & WALKER LLP, Bailee By:__________________________ Name: Robert J. Grados ACCEPTED AND AGREED: MORGAN STANLEY MORTGAGE CAPITAL INC., Lender By:__________________________ Name: Title: A-4 Schedule A [List of Pledged Documents] A-5 Attachment 1 IDENTIFICATION CERTIFICATE On this ____ day of ____________, 200_, ________________________ (the "Borrower"), under that certain Bailee Agreement of even date herewith (the "Bailee Agreement"), among the Borrower, PAUL, HASTINGS, JANOFSKY & WALKER LLP, (the "Bailee"), and MORGAN STANLEY MORTGAGE CAPITAL INC., as Lender, does hereby instruct the Bailee to hold, in its capacity as Bailee, the Collateral Files with respect to the Collateral Loans listed on Exhibit A hereto, which Collateral Loans shall be subject to the terms of the Bailee Agreement as of the date hereof. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Bailee Agreement. IN WITNESS WHEREOF, the Borrower has caused this Identification Certificate to be executed and delivered by its duly authorized officer as of the day and year first above written. ---------------------------, Borrower By:_________________________ Name: Title: A-6 Exhibit A to Attachment 1 COLLATERAL LOAN SCHEDULE A-7 Attachment 2 FORM OF BAILEE'S TRUST RECEIPT AND CERTIFICATION ____________, 200_ Morgan Stanley Mortgage Capital Inc. 1221 Avenue of the Americas, 27th Floor New York, New York 10020 Attention: Mr. Andrew B. Neuberger Re: Bailee Agreement, dated as of ____________ __, 200_ (the "Bailee Agreement") among _____________________ (the "Borrower"), Morgan Stanley Mortgage Capital Inc. (the "Lender") and Paul, Hastings, Janofsky & Walker LLP (the "Bailee") Gentlemen and Mesdames: In accordance with the provisions of Paragraph 3 of the above-referenced Bailee Agreement, the undersigned, as the Bailee, hereby certifies that as to each Collateral Loan described in the Collateral Loan Schedule (Exhibit A to Attachment 1), a copy of which is attached hereto, it has reviewed the Collateral File and has determined that (i) all documents listed in Schedule A attached to the Bailee Agreement are in its possession and (ii) such documents have been reviewed by it and appear regular on their face and relate to such Collateral Loan, and (iii) based on its examination, the foregoing documents on their face satisfy the requirements set forth in Paragraph 2 of the Bailee Agreement. The Bailee hereby confirms that it is holding each such Collateral File as agent and bailee for the exclusive use and benefit of the Lender pursuant to the terms of the Bailee Agreement. All initially capitalized terms used herein shall have the meanings ascribed to them in the above-referenced Bailee Agreement. PAUL, HASTINGS, JANOFSKY & WALKER LLP, BAILEE By:___________________________ Name: Robert J. Grados, Esq. A-8 EX-31 7 ex31-1.txt EX. 31.1 - CERTIFICATION OF JOHN R. KLOPP Exhibit 31.1 CERTIFICATION PURSUANT TO 17 CFR 240.13a-14 PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John R. Klopp, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Capital Trust, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 6, 2003 /s/ John R. Klopp ---------------------- John R. Klopp Chief Executive Officer EX-31 8 ex31-2.txt EX. 31.2 - CERTIFICATION OF BRIAN H. OSWALD Exhibit 31.2 CERTIFICATION PURSUANT TO 17 CFR 240.13a-14 PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Brian H. Oswald, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Capital Trust, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 6, 2003 /s/ Brian H. Oswald ---------------------- Brian H. Oswald Chief Financial Officer EX-32 9 ex32-1.txt EX. 32.1 - CERTIFICATION OF JOHN R. KLOPP Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Capital Trust, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Klopp, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John R. Klopp - ---------------------- John R. Klopp Chief Executive Officer November 6, 2003 EX-32 10 ex32-2.txt EX. 32.2 - CERTIFICATION OF BRIAN H. OSWALD Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Capital Trust, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Brian H. Oswald, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Brian H. Oswald - ---------------------- Brian H. Oswald Chief Financial Officer November 6, 2003 -----END PRIVACY-ENHANCED MESSAGE-----