-----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, IqcG2E6Jd2FWo6m9m3muN/LcyU3ee5Jyt6xYy0ML/6pjmqo4PFMWA4/exoujUS6P qk8OR/ZH/lflLOUnLlg36A== 0001116679-05-002629.txt : 20051101 0001116679-05-002629.hdr.sgml : 20051101 20051031175237 ACCESSION NUMBER: 0001116679-05-002629 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051101 DATE AS OF CHANGE: 20051031 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: 051167472 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 c10-q.txt SEPTEMBER 30, 2005 To be filed with the Securities and Exchange Commission on October 31, 2005 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, 2005 ------------------ 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 Exchange Act). Yes X No ----- ----- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: The number of outstanding shares of the registrant's class A common stock, par value $0.01 per share, as of October 31, 2005 was 15,158,447. CAPITAL TRUST, INC. INDEX
Part I. Financial Information Item 1: Financial Statements 1 Consolidated Balance Sheets - September 30, 2005 (unaudited) and December 31, 2004 (audited) 1 Consolidated Statements of Income - Three and Nine Months Ended September 30, 2005 and 2004 (unaudited) 2 Consolidated Statements of Changes in Shareholders' Equity - Nine Months Ended September 30, 2005 and 2004 (unaudited) 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2005 and 2004 (unaudited) 4 Notes to Consolidated Financial Statements (unaudited) 5 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3: Quantitative and Qualitative Disclosures about Market Risk 24 Item 4: Controls and Procedures 25 Part II. Other Information Item 1: Legal Proceedings 26 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 3: Defaults Upon Senior Securities 26 Item 4: Submission of Matters to a Vote of Security Holders 26 Item 5: Other Information 26 Item 6: Exhibits 27 Signatures 28
Capital Trust, Inc. and Subsidiaries Consolidated Balance Sheets September 30, 2005 and December 31, 2004 (in thousands)
September 30, December 31, 2005 2004 -------------------- ------------------- (unaudited) (audited) Assets Cash and cash equivalents $ 14,412 $ 24,583 Restricted cash 2,089 611 Commercial mortgage-backed securities 454,260 247,765 Loans receivable 815,225 556,164 Total return swap 4,000 -- Equity investment in CT Mezzanine Partners II LP ("Fund II"), CT MP II LLC ("Fund II GP") and CT Mezzanine Partners III, Inc. ("Fund III") (together "Funds") 16,503 21,376 Deposits and other receivables 3 10,282 Accrued interest receivable 7,983 4,029 Interest rate hedge assets 1,070 194 Deferred income taxes 3,734 5,623 Prepaid and other assets 13,476 7,139 -------------------- ------------------- Total assets $ 1,332,755 $ 877,766 ==================== =================== Liabilities and Shareholders' Equity Liabilities: Accounts payable and accrued expenses $ 17,818 $ 17,388 Credit facility -- 65,176 Repurchase obligations 157,774 225,091 Collateralized debt obligations ("CDOs") 823,817 252,778 Deferred origination fees and other revenue 739 836 -------------------- ------------------- Total liabilities 1,000,148 561,269 -------------------- ------------------- Shareholders' equity: Class A common stock, $0.01 par value, 100,000 shares authorized, 14,844 and 14,769 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively ("class A common stock") 148 148 Restricted class A common stock, $0.01 par value, 314 and 283 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively ("restricted class A common stock" and together with class A common stock, "common stock") 3 3 Additional paid-in capital 324,937 321,937 Accumulated other comprehensive gain 14,095 3,815 Accumulated deficit (6,576) (9,406) -------------------- ------------------- Total shareholders' equity 332,607 316,497 -------------------- ------------------- Total liabilities and shareholders' equity $ 1,332,755 $ 877,766 ==================== ===================
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, 2005 and 2004 (in thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Income from loans and other investments: Interest and related income $ 22,751 $ 12,979 $ 57,359 $ 31,169 Less: Interest and related expenses on secured debt 10,325 3,758 23,709 8,848 Less: Interest and related expenses on step up convertible junior subordinated debentures -- 1,552 -- 6,417 ------------ ------------ ------------ ------------ Income from loans and other investments, net 12,426 7,669 33,650 15,904 ------------ ------------ ------------ ------------ Other revenues: Management and advisory fees from Funds 1,517 1,910 12,144 6,025 Income/(loss) from equity investments in Funds 467 301 (835) 1,126 Gain on sales of investments -- -- -- 300 Other interest income 137 19 374 35 ------------ ------------ ------------ ------------ Total other revenues 2,121 2,230 11,683 7,486 ------------ ------------ ------------ ------------ Other expenses: General and administrative 5,316 3,996 16,384 10,127 Depreciation and amortization 278 274 837 822 ------------ ------------ ------------ ------------ Total other expenses 5,594 4,270 17,221 10,949 ------------ ------------ ------------ ------------ Income before income taxes 8,953 5,629 28,112 12,441 Provision for income taxes (846) (229) 315 -- ------------ ------------ ------------ ------------ Net income $ 9,799 $ 5,858 $ 27,797 $ 12,441 ============ ============ ============ ============ Per share information: Net earnings per share of common stock: Basic $ 0.65 $ 0.51 $ 1.84 $ 1.46 ============ ============ ============ ============ Diluted $ 0.64 $ 0.50 $ 1.81 $ 1.43 ============ ============ ============ ============ Weighted average shares of common stock outstanding: Basic 15,125,443 11,448,503 15,110,227 8,492,967 ============ ============ ============ ============ Diluted 15,358,943 11,659,193 15,339,533 8,686,079 ============ ============ ============ ============ Dividends declared per share of common stock $ 0.55 $ 0.45 $ 1.65 $ 1.35 ============ ============ ============ ============
See accompanying notes to unaudited consolidated financial statements. - 2 - Capital Trust, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity For the Nine Months Ended September 30, 2005 and 2004 (in thousands) (unaudited)
Restricted Accumulated Class A Class A Additional Other Comprehensive Common Common Paid-In Unearned Comprehensive Income/(Loss) Stock Stock Capital Compensation Income/(Loss) ---------------- ----------------------------------------------------------------- Balance at January 1, 2004 $ 65 $ -- $ 141,402 $ (247) $ (33,880) Net income $ 12,441 -- -- -- -- -- Unrealized gain on derivative financial instruments (902) -- -- -- -- (902) Unrealized gain on available-for-sale securities 35,778 -- -- -- -- 35,778 Implementation of SFAS No.123 -- -- -- (247) 247 -- Issuance of restricted class A common stock -- -- 3 (3) -- -- Sale of shares of class A common stock under stock option agreement -- 1 -- 784 -- -- Vesting of restricted class A common stock to unrestricted class A common stock -- -- -- -- -- -- Conversion of class A common stock units to class A common stock -- -- -- 410 -- -- Conversion of step up convertible junior subordinated debentures to class A common stock -- 43 -- 90,048 -- -- Restricted class A common stock earned -- -- -- 814 -- -- Stock options expensed under SFAS No. 123 -- -- -- 51 -- -- Shares of class A common stock issued in public offering -- 19 -- 41,603 -- -- Shares of class A common stock issued in direct public offering -- 16 -- 37,963 -- -- Shares of class A common stock issued upon exercise of warrants -- 4 -- 8,537 -- -- Dividends declared on common stock -- -- -- -- -- -- ---------------- ----------------------------------------------------------------- Balance at September 30, 2004 $ 47,317 $ 148 $ 3 $ 321,362 $ -- $ 996 ================ ================================================================= Balance at January 1, 2005 $ 148 $ 3 $ 321,937 $ -- $ 3,815 Net income $ 27,797 -- -- -- -- -- Unrealized loss on derivative financial instruments 876 -- -- -- -- 876 Unrealized gain on available-for-sale securities, net of amortization 8,393 -- -- -- -- 8,393 Sale of shares of common stock under stock option agreements -- -- -- 1,121 -- -- Deferred gain on settlement of swap, net of amortization -- -- -- -- -- 1,011 Vesting of restricted class A common stock to unrestricted class A common stock -- -- -- -- -- -- Restricted class A common stock earned -- -- -- 1,936 -- -- Restricted class A common stock forfeited upon resignation by holder -- -- -- (57) -- -- Dividends declared on common stock -- -- -- -- -- -- ---------------- ----------------------------------------------------------------- Balance at September 30, 2005 $ 37,066 $ 148 $ 3 $ 324,937 $ -- $ 14,095 ================ ================================================================= Accumulated Deficit Total ----------------------------- Balance at January 1, 2004 $ (11,323) $ 96,017 Net income $ 12,441 12,441 Unrealized gain on derivative financial instruments -- (902) Unrealized gain on available-for-sale securities -- 35,778 Implementation of SFAS No.123 -- -- Issuance of restricted class A common stock -- -- Sale of shares of class A common stock under stock option agreement -- 785 Vesting of restricted class A common stock to unrestricted class A common stock -- -- Conversion of class A common stock units to class A common stock -- 410 Conversion of step up convertible junior subordinated debentures to class A common stock -- 90,091 Restricted class A common stock earned -- 814 Stock options expensed under SFAS No. 123 -- 51 Shares of class A common stock issued in public offering -- 41,622 Shares of class A common stock issued in direct public offering -- 37,979 Shares of class A common stock issued upon exercise of warrants -- 8,541 Dividends declared on common stock (12,533) (12,533) ----------------------------- Balance at September 30, 2004 $ (11,415) $ 311,094 ============================= Balance at January 1, 2005 $ (9,406) $ 316,497 Net income $ 27,797 27,797 Unrealized loss on derivative financial instruments -- 876 Unrealized gain on available-for-sale securities, net of amortization -- 8,393 Sale of shares of common stock under stock option agreements -- 1,121 Deferred gain on settlement of swap, net of amortization -- 1,011 Vesting of restricted class A common stock to unrestricted class A common stock -- -- Restricted class A common stock earned -- 1,936 Restricted class A common stock forfeited upon resignation by holder -- (57) Dividends declared on common stock (24,967) (24,967) ----------------------------- Balance at September 30, 2005 $ (6,576) $ 332,607 =============================
See accompanying notes to unaudited consolidated financial statements. - 3 - Capital Trust, Inc. and Subsidiaries Consolidated Statements of Cash Flows Nine Months ended September 30, 2005 and 2004 (in thousands) (unaudited)
2005 2004 ---------------- ----------------- Cash flows from operating activities: Net income $ 27,797 $ 12,441 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deferred income taxes 1,889 (1,830) Depreciation and amortization 837 822 Loss/(income) from equity investments in Funds 835 (1,126) Stock based compensation 1,899 814 Gain on sale of investments -- (300) Amortization of premiums and accretion of discounts on loans and investments, net (2,158) (1,106) Accretion of discounts and fees on convertible trust preferred securities or convertible step up junior subordinated debentures, net -- 276 Stock option expense -- 51 Changes in assets and liabilities, net: Deposits and other receivables 279 123 Accrued interest receivable (3,954) (437) Prepaid and other assets 886 1,660 Deferred origination fees and other revenue (97) (1,761) Accounts payable and accrued expenses (354) 755 ---------------- ----------------- Net cash provided by operating activities 27,859 10,382 ---------------- ----------------- Cash flows from investing activities: Purchases of commercial mortgage-backed securities (205,565) (59,551) Principal collections on and proceeds from sale of commercial mortgage-backed securities 8,787 5,012 Principal collections and proceeds from sales on available-for-sale -- 19,561 securities Origination and purchase of loans receivable (510,015) (366,988) Principal collections and proceeds from sale of loans receivable 261,787 60,264 Purchase of total return swap (4,000) -- Equity investments in Funds (4,660) (3,500) Return of capital from Funds 7,950 6,554 Increase in restricted cash (1,478) (8,009) Purchases of equipment and leasehold improvements (23) (102) ---------------- ----------------- Net cash used in investing activities (447,217) (346,759) ---------------- ----------------- Cash flows from financing activities: Proceeds from repurchase obligations 436,393 122,422 Repayment of repurchase obligations (503,710) (91,283) Proceeds from credit facilities 104,704 169,676 Repayment of credit facilities (169,880) (179,544) Repayment of term redeemable securities contract -- (11,651) Proceeds from issuance of CDOs 571,039 252,778 Settlement of interest rate hedges 1,410 -- Payment of deferred financing costs (7,734) (6,060) Dividends paid on class A common stock (24,156) (9,663) Sale of shares of class A common stock under stock option agreements 1,121 785 Proceeds from sale of shares of class A common stock -- 79,601 Proceeds from exercise of warrants for shares of class A common stock -- 8,541 ---------------- ----------------- Net cash provided by financing activities 409,187 335,602 ---------------- ----------------- Net decrease in cash and cash equivalents (10,171) (775) Cash and cash equivalents at beginning of year 24,583 8,738 ---------------- ----------------- Cash and cash equivalents at end of period $ 14,412 $ 7,963 ================ =================
See accompanying notes to unaudited consolidated financial statements - 4- Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 1. Presentation of Financial Information References herein to "we," "us" or "our" refer to Capital Trust, Inc. and its subsidiaries unless the context specifically requires otherwise. We are a fully integrated, self managed finance and investment management company that specializes in credit-sensitive structured financial products. To date, our investment activities have focused primarily on the U.S. commercial real estate subordinate debt markets. We execute our business both as a balance sheet investor and as an investment manager through our CT Mezzanine Partners family of funds. We conduct our operations as a real estate investment trust, or REIT, for federal income tax purposes. We are headquartered in New York City. 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. In our opinion, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2005. The accompanying unaudited consolidated interim financial statements include our accounts, our wholly-owned subsidiaries and our interests in variable interest entities in which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. Our accounting and reporting policies 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. From time to time we purchase commercial mortgage backed securities, or CMBS, and other investments in which we have a level of control over the issuing entity; we refer to these investments as Controlling Class Investments. The presentation of Controlling Class Investments in our financial statements is governed in part by Financial Accounting Standards Board ("FASB") Interpretation No. 46 ("FIN 46"). FIN 46 could require that certain Controlling Class Investments be presented on a consolidated basis. Based upon the specific circumstances of certain of our CMBS investments that are Controlling Class Investments and our interpretation of FIN 46, specifically the exemption for qualifying special purpose entities as defined under FASB Statements of Financial Accounting Standard No. 140 ("FAS 140"), we have concluded that the entities that have issued the Controlling Class Investments should not be presented on a consolidated basis. We are aware that FAS 140 is currently under review by standard setters and that as a result of this review our current interpretation of FIN 46 and FAS 140 may change. On August 4, 2005, pursuant to the provisions of Statement of Financial Accounting Standard ("SFAS") No. 115, we made a decision to change the accounting classification of our CMBS investments from available for sale to held to maturity. In accordance with this decision, CMBS with an amortized cost of $410,047,000 and a market value of $422,259,000 were reclassified from available for sale to held to maturity. As was the case prior to this reclassification, the difference between amortized cost and expected recovery on these investments will continue to be accreted through the income statement using the level yield method accretion schedules in place prior to the reclassification. The difference between amortized cost and market value as of the reclassification date, $12,212,000, was segregated within accumulated other comprehensive income and will be amortized over the remaining life of the securities using the level yield method without impact to the income statement. We made the decision to reclassify these investments based upon our intent and ability to hold these investments to maturity. Going forward, new originations of held to maturity investments will be stated at cost plus the amortization of any premiums or discounts and any premiums or discounts will be amortized through the income statement using the level yield method. Other than in the instance of impairment, these held to maturity investments will be shown in our financial statements at their adjusted values pursuant to the methodology described above. - 5 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 2. Application of New Accounting Policy During the fourth quarter of 2004, we elected to adopt the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 using the modified prospective method provided in Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". Under the modified prospective method, we recognized stock-based employee compensation costs based upon the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 effective January 1, 2004 and have restated previously reported quarterly results to reflect the adoption. Compensation expense on awards with graded vesting is recognized on the accelerated attribution method under Financial Accounting Standards Board Interpretation No. 28. 3. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 4. Restricted Cash Restricted cash of $2,089,000 at September 30, 2005 is on deposit with the trustee for our reinvesting CDOs and will be used to purchase replacement collateral for the CDOs. 5. Commercial Mortgage-Backed Securities During the nine months ended September 30, 2005, we made eighteen investments in commercial mortgage-backed securities, or CMBS, with a total purchase price of $205,404,000 ($229,867,000 face value). Fourteen investments with a total purchase price of $165,460,000 ($189,918,000 face value) earn interest at fixed rates with a weighted average stated coupon of 6.26% and four investments with a total purchase price of $39,944,000 ($39,948,000 face value) earn interest at variable rates with a weighted average stated coupon of LIBOR plus 1.91% (5.77% at September 30, 2005). In addition, one CMBS investment with a face value of $1,750,000 was repaid in full during the period. At September 30, 2005, we had thirty six investments in twenty five separate CMBS issues with an aggregate face value of $493,127,000. CMBS with a face value of $98,924,000 earn interest at variable rates and have coupons averaging LIBOR plus 2.64% (6.50% at September 30, 2005). The remaining CMBS, $394,204,000 face value, earn interest at fixed rates and have coupons averaging 6.98%. In the aggregate, we purchased the CMBS at total discounts to face value of $69,431,000 and expected to recover, net of anticipated losses, $42,631,000 of that amount which we amortize over the lives of the securities. As of September 30, 2005, the remaining discount to be amortized into income over the remaining lives of the securities was $18,810,000. At September 30, 2005, the weighted average coupon of the entire CMBS portfolio was 6.88%. As of September 30, 2005, the securities were carried at market value of $455,500,000, reflecting a $12,198,000 net unrealized gain to the amortized cost of the portfolio and other than temporary write-downs taken in 2004 on two securities of $5,275,000. On August 4, 2005, pursuant to the provisions of Statement of Financial Accounting Standard ("SFAS") No. 115, we made a decision to change the accounting classification of our CMBS investments from available for sale to held to maturity. In accordance with this decision, CMBS with an amortized cost of $410,047,000 and a market value of $422,259,000 were reclassified from available for sale to held to maturity. As was the case prior to this reclassification, the difference between amortized cost and expected recovery on these investments will continue to be accreted through the income statement using the level yield method accretion schedules in place prior to the reclassification. The difference between amortized cost and market value as of the reclassification date, $12,212,000, was segregated within accumulated other comprehensive income and will be amortized over the remaining life of the securities using the level yield method without impact to the income statement. We made the decision to reclassify these investments based upon our intent and ability to hold these investments to maturity. Going forward, new originations of held to maturity investments will be stated at cost plus the amortization of any - 6 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) premiums or discounts and any premiums or discounts will be amortized through the income statement using the level yield method. Other than in the instance of impairment, these held to maturity investments will be shown in our financial statements at their adjusted values pursuant to the methodology described above. 6. Loans Receivable At September 30, 2005 and December 31, 2004, our loans receivable consisted of the following (in thousands): September 30, December 31, 2005 2004 ------------------- ------------------- First mortgage loans $ 3,038 $ 3,038 Property mezzanine loans 260,487 159,506 B Notes 551,700 393,620 ------------------- ------------------- Total loans $ 815,225 $ 556,164 =================== =================== One first mortgage loan with an original principal balance of $8,000,000 matured on July 15, 2001 but 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. Since the write-down, cash collections of $962,000 have reduced the carrying value of the loan to $3,038,000. In accordance with our policy for revenue recognition, income recognition has been suspended on this loan and potential interest income of $791,000 has not been recorded for the nine months ended September 30, 2005. All other loans are performing in accordance with the terms of the loan agreements. During the nine months ended September 30, 2005, we originated seven property mezzanine loans for $169,570,000 (of which $144,538,000 was funded as of September 30, 2005) and 25 B Notes for $375,477,000. In addition, we received partial repayments on five property mezzanine loans and 27 B Notes totaling $45,533,000 and three property mezzanine loans and twenty three B Notes totaling $215,420,000 were satisfied and repaid. We have outstanding unfunded loan commitments at September 30, 2005 of $25,033,000. At September 30, 2005, the weighted average interest rates for our performing loans receivable were as follows: Property mezzanine loans 9.01% B Notes 7.38% Total Loans 7.90% At September 30, 2005, $681,793,000 (84%) of the aforementioned performing loans bear interest at floating rates ranging from LIBOR plus 1.60% to LIBOR plus 7.29%. The remaining $130,395,000 (16%) of loans bear interest at fixed rates ranging from 7.00% to 11.67%. 7. Total Return Swap During the nine months ended September 30, 2005, we entered into one total return swap agreement. Under the terms of the agreement, we have posted $4,000,000 of cash collateral as security for a $20,000,000 synthetic interest in an underlying referenced loan that is secured by shares of a publicly traded REIT. We receive interest at LIBOR flat on the $4,000,000 cash collateral balance and LIBOR plus 3.75% on the $20,000,000 interest in the referenced loan and pay LIBOR plus 1.00% on the $20,000,000 referenced loan. At September 30, 2005, we are receiving LIBOR plus 13.75% on the $4,000,000 cash collateral balance (17.61% at September 30, 2005). We collected an origination fee with the execution of the agreement which adds an additional 2.95% to the return. If the price of the stock which serves as collateral for the referenced loan falls below a specified level, we will be required to increase our cash collateral to 30% of the loan balance. If the loan was to default, we would be required to purchase the loan, thereby eliminating the total return swap agreement. The total return swap is treated as a non-hedge derivative for accounting purposes and therefore changes in market value are recorded through the income statement. At September 30, 2005 the total return swap has a fair market value of $4,000,000. - 7 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 8. Equity Investment in Funds Equity Investments in Funds represents our investment in third party private equity funds managed by our wholly owned subsidiary, CT Investment Management Co., LLC, which we refer to as CTIMCO. As of September 30, 2005, CTIMCO managed two such funds, CT Mezzanine Partners II LP and CT Mezzanine Partners III, Inc. which we refer to as Fund II and Fund III, respectively. We account for these investments using the equity method. At quarter end, our limited partner investment in Fund II was carried at $1,331,000 and our investment in Fund III was carried at $9,864,000, representing a 5.38% and 4.71% investment in each fund, respectively. We also own a 50% share in Fund II's general partner, CTMP II LLC. CTMP II LLC owns a 1.0% interest in Fund II that is carried at $482,000. In addition to our investments in these entities, Equity Investments in Funds includes $4,826,000 of capitalized costs associated with the organization of the investment management business. During the nine months ended September 30, 2005, through our ownership interest in the Fund II general partner, we received $7,841,000 of incentive management fees from Fund II. In connection with receipt of the incentive management fees, the amortization of certain capitalized costs at the general partner of Fund II was accelerated. For the nine months ended September 30, 2005, the total of scheduled amortization and the accelerated amortization of these previously capitalized costs that flowed through to us was $1,397,000. 9. Long-Term Debt Credit Facility At September 30, 2005, we were no longer a party to any credit facilities. Repurchase Obligations On August 16, 2005, we entered into a new three year $75,000,000 repurchase facility with a securities dealer. In addition to the August 15, 2005 repurchase facility, we entered into several additional repurchase agreements outstanding with the same securities dealer. At September 30, 2005, we had secured borrowings of $69,411,000 with the securities dealer and had the ability to borrow an additional $61,258,000 against the collateral pledged to secure borrowings under those agreements. Borrowings under these repurchase agreements bear interest at specified rates over LIBOR based upon the credit characteristics of the collateral. At September 30, 2005, borrowing rates ranged from LIBOR plus 0.35% to LIBOR plus 2.00%. On July 29, 2005, we entered into two new three year $75,000,000 repurchase facilities with a second securities dealer. At September 30, 2005, we had secured borrowings of $40,710,000 and had the ability to borrow an additional $34,737,000 against the collateral pledged to secure borrowings under these agreements. Borrowings under these repurchase agreements bear interest at specified rates over LIBOR based upon the credit characteristics of the collateral. At September 30, 2005, borrowing rates ranged from LIBOR plus 0.50% to LIBOR plus 2.00%. On March 4, 2005, we entered into a new five year $75,000,000 repurchase facility with a third securities dealer. At September 30, 2005, we had secured borrowings of $27,005,000. Borrowings under this repurchase facility bear interest at LIBOR plus 1.00%. At September 30, 2005, we were party to repurchase agreements with four securities dealers with total repurchase commitments of $650,000,000 and had total outstanding borrowings of $157,774,000. The weighted average cash borrowing cost for all the repurchase agreements outstanding at September 30, 2005 was LIBOR plus 1.06% (4.92% at September 30, 2005). Assuming no additional utilization under the repurchase agreements and including the amortization of all fees paid and capitalized over the remaining term of the repurchase agreements, the all-in effective borrowing cost was LIBOR plus 1.34% (5.20% at September 30, 2005). At September 30, 2005, if all of the assets pledged under repurchase agreements were drawn upon, we could obtain an additional $123,620,000 of financing. - 8 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) Collateralized Debt Obligations On August 4, 2005, we issued our third collateralized debt obligation that we refer to as CDO III. CDO III is secured by a static pool of $341,261,000 of fixed rate subordinate CMBS. At issuance, we sold notes rated AAA through BBB with a total face value of $269,594,000 to third parties for proceeds of $272,174,000. We retained all of the unrated and below investment grade rated notes, the BBB- rated notes and the preferred equity interests. The fixed rate notes we sold carry a weighted average coupon of 5.22% and because of the $2,580,000 premium at which they were sold, have an effective cash cost to us of 5.17%. The issuance represents term and index matched, non-recourse and non-mark to market financing for the underlying collateral. We incurred $2,088,000 of issuance costs that will be amortized on a level yield basis over the average life of the CDO. Including the amortization of the issuance costs, the all in effective rate for the notes sold was 5.25%. For accounting purposes, the CDO is consolidated in our financial statements. On March 15, 2005, we issued our second collateralized debt obligation that we refer to as CDO II. CDO II is a reinvesting CDO secured by $337,755,000 of mezzanine loans, B Notes, subordinate CMBS and cash. At issuance, we sold notes rated AAA to BBB- with a face value of $298,913,000 to third parties at par. The notes we sold bear interest at a weighted average floating rate of LIBOR plus 0.49% (4.35% at September 30, 2005). We retained all of the unrated and below investment grade rated notes and the preferred equity interests. We incurred $5,223,000 of issuance costs which will be amortized on a level yield basis over the average life of the CDO. Including the amortization of the issuance costs, the all in effective rate for the notes sold was LIBOR plus 0.71% (4.57% at September 30, 2005). CDO II was structured with a five year reinvestment period that allows us to reinvest principal proceeds from collateral repayments into new investments, effectively extending the life of the financing. For accounting purposes, the CDO is consolidated in our financial statements. At September 30, 2005, we had collateralized debt obligations outstanding from three separate issuances with a total face value of $821,285,000. CDOs are recorded on the balance sheet at $823,817,000, representing the amortized sales price of the securities sold to third parties. Derivative Financial Instruments The following table summarizes the notional and fair values of our derivative financial instruments at September 30, 2005. The notional value provides an indication of the extent of our involvement in the instruments at that time, but does not represent exposure to credit, interest rate or foreign exchange market risks.
Interest Hedge Type Notional Value Rate Maturity Fair Value - ----------- -------------------- ----------------- ---------------- ------------ --------------- Swap Cash Flow Hedge $74,094,000 4.584% 2014 $197,000 Swap Cash Flow Hedge 19,291,000 3.950% 2011 575,000 Swap Cash Flow Hedge 18,438,000 4.589% 2015 77,000 Swap Cash Flow Hedge 8,683,000 4.648% 2018 50,000 Swap Cash Flow Hedge 7,445,000 4.470% 2013 52,000 Swap Cash Flow Hedge 5,499,000 3.118% 2007 119,000
During the nine months ended September 30, 2005, we received $1,410,000 from counterparties in settlement of two interest rate swaps. Recognition of these settlements has been deferred and is being amortized over the remaining life of the previously hedged item using an approximation of the level yield basis. We also entered into four new cash flow hedges during the nine months ended September 30, 2005. On September 30, 2005, the derivative financial instruments were reported at their fair value of $1,070,000 as interest rate hedge assets. - 9 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 10. Earnings Per Share The following table sets forth the calculation of Basic and Diluted EPS for the nine months ended September 30, 2005 and 2004:
Nine months Ended September 30, 2005 Nine months Ended September 30, 2004 ----------------------------------------------------------------------------------------- Per Share Per Share Net Income Shares Amount Net Income Shares Amount ----------------------------------------------------------- ----------------- ----------- Basic EPS: Net earnings per share of common stock $ 27,797,000 15,110,227 $ 1.84 $ 12,441,000 8,492,967 $ 1.46 ============== =========== Effect of Dilutive Securities Options outstanding for the purchase of common stock -- 172,744 -- 123,592 Warrants outstanding for purchase of common stock -- -- -- 25,100 Stock units outstanding convertible to shares of common stock -- 56,562 -- 44,420 ---------------- -------------- -------------- ----------------- Diluted EPS: Net earnings per share of common stock and assumed conversions $ 27,797,000 15,339,533 $ 1.81 $ 12,441,000 8,686,079 $ 1.43 ================ ============= ============ ============== ================= ===========
The following table sets forth the calculation of Basic and Diluted EPS for the three months ended September 30, 2005 and 2004:
Three Months Ended September 30, 2005 Three Months Ended September 30, 2004 ----------------------------------------------------------------------------------------- Per Share Per Share Net Income Shares Amount Net Income Shares Amount ----------------------------------------------------------- ----------------- ----------- Basic EPS: Net earnings per share of common stock $ 9,799,000 15,125,443 $ 0.65 $ 5,858,000 11,448,503 $ 0.51 ============ =========== Effect of Dilutive Securities Options outstanding for the purchase of common stock -- 173,900 -- 134,846 Warrants outstanding for purchase of common stock -- -- -- 26,308 Stock units outstanding convertible to shares of common stock -- 59,600 -- 49,536 ---------------- -------------- -------------- ----------------- Diluted EPS: Net earnings per share of common stock and assumed conversions $ 9,799,000 15,358,943 $ 0.64 $ 5,858,000 11,659,193 $ 0.50 ================ ============= ============ ============== ================= ===========
- 10 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 11. Income Taxes We made 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 ended December 31, 2003. As a REIT, we are generally not subject to federal income tax. To maintain qualification as a REIT, we must distribute at least 90% of our REIT taxable income to our shareholders and meet certain other requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on taxable income at regular corporate rates. We may also be subject to certain state and local taxes on our income and property. Under certain circumstances, federal income and excise taxes may be due on our undistributed taxable income. At September 30, 2005, we were in compliance with all REIT requirements. During the nine months ended September 30, 2005, we recorded $315,000 of income tax expense for income attributable to taxable REIT subsidiaries. Our effective tax rate for the nine months ended September 30, 2005 attributable to taxable REIT subsidiaries was 40.2%. 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. 12. Dividends In order to maintain our election to qualify as a REIT, we must currently distribute, at a minimum, an amount equal to 90% of our REIT taxable income and must distribute 100% of our REIT taxable income to avoid paying corporate federal income taxes. We expect to distribute all of our REIT taxable income to our shareholders. Because REIT taxable income differs from cash flow from operations due to non-cash revenues or expenses, in certain circumstances, we may be required to borrow to make sufficient dividend payments to meet this anticipated dividend threshold. On September 15, 2005, we declared a dividend of approximately $8,337,000, or $0.55 per share of common stock applicable to the three-month period ended September 30, 2005, payable on October 15, 2005 to shareholders of record on September 30, 2005. 13. Employee Benefit Plans Amended and Restated 1997 Long-Term Incentive Stock Plan During the nine months ended September 30, 2005, we did not issue any options to acquire shares of class A common stock. The following table summarizes the option activity under the incentive stock plan for the quarter ended September 30, 2005:
Weighted Average Options Exercise Price Exercise Price Outstanding per Share per Share ------------------- ------------------------- ------------------ Outstanding at January 1, 2005 458,998 $12.375 - $30.00 $ 19.67 Granted in 2005 -- -- -- Exercised in 2005 (58,815) $12.375 - $30.00 $19.06 Canceled in 2005 -- -- -- ------------------- ------------------ Outstanding at September 30, 2005 400,183 $12.375 - $30.00 $ 19.75 =================== ==================
At September 30, 2005, all of the options are exercisable. At September 30, 2005, the outstanding options have various remaining contractual exercise periods ranging from 0.25 to 6.34 years with a weighted average life of 3.72 years. - 11 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) Amended and Restated 2004 Long-Term Incentive Plan During the first quarter of 2005, we issued 56,073 shares of common stock to employees as incentive compensation pursuant to the 2004 Long-Term Incentive plan. We issued 21,448 shares of common stock to John R. Klopp pursuant to his employment agreement as a result of the attainment of 2004 annual performance measures set forth in the related performance award, 50% of which are subject to further time vesting in one-third increments on each of January 1, 2006, 2007 and 2008 and 50% of which are subject to further performance vesting as performance stock and vest, if at all, on December 31, 2008 if total shareholder return exceeds 13% during the period from January 1, 2005 to December 31, 2008. We issued 34,625 shares of common stock to other employees pursuant to restricted stock and performance unit awards. Pursuant to the awards, 50% of the shares vest as restricted stock in equal one-third increments on each of February 4, 2006, 2007 and 2008 and 50% of the shares are subject to performance vesting as performance stock and vest, if at all, on February 4, 2009 if total shareholder return exceeds 13% during the period from January 1, 2005 to December 31, 2008. During the nine months ended September 30, 2005, 8,703 shares of restricted stock for which the vesting requirements had not yet been met were forfeited by employees who resigned. In connection with the forfeiture, we reversed $57,000 of compensation expense. Compensation expense for stock awards is recognized on the accelerated attribution method under Financial Accounting Standards Board Interpretation No. 28. 14. Supplemental Disclosures for Consolidated Statements of Cash Flows Interest paid on our outstanding debt and convertible junior subordinated debentures during the nine months ended September 30, 2005 and 2004 was $21,733,000 and $14,247,000, respectively. We paid income taxes during the nine months ended September 30, 2005 and 2004 of $5,000 and $1,011,000, respectively. - 12 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) 15. Segment Reporting We operate two reportable segments. We have an internal information system that produces performance and asset data for the two segments along business lines. The Balance Sheet Investment segment includes all activities related to direct loan and investment activities (including direct investments in Funds) and the financing thereof. The Investment Management segment includes all activities related to investment management services provided to us and third-party funds under management and includes our taxable REIT subsidiary, CT Investment Management Co., LLC and its subsidiaries. The following table details each segment's contribution to our overall profitability and the identified assets attributable to each such segment for the nine months ended, and as of, September 30, 2005, respectively (in thousands):
Balance Sheet Investment Inter-Segment Investment Management Activities Total ----------------- ---------------- ---------------- -------------- Income from loans and other investments: Interest and related income $ 57,359 $ -- $ -- $ 57,359 Less: Interest and related expenses on credit facilities, term redeemable securities contract and repurchase obligations 23,709 -- -- 23,709 ----------------- ---------------- ---------------- -------------- Income from loans and other investments, net 33,650 -- -- 33,650 ----------------- ---------------- ---------------- -------------- Other revenues: Management and advisory fees -- 15,718 (3,574) 12,144 Income/(loss) from equity investments in Funds 628 (1,463) -- (835) Other interest income 318 64 (8) 374 ----------------- ---------------- ---------------- -------------- Total other revenues 946 14,319 (3,582) 11,683 ----------------- ---------------- ---------------- -------------- Other expenses: General and administrative 6,710 13,248 (3,574) 16,384 Other interest expense 8 -- (8) -- Depreciation and amortization 633 204 -- 837 ----------------- ---------------- ---------------- -------------- Total other expenses 7,351 13,452 (3,582) 17,221 ----------------- ---------------- ---------------- -------------- Income before income taxes 27,245 867 28,112 Provision for income taxes -- 315 -- 315 ----------------- ---------------- ---------------- -------------- Net income allocable to class A common stock $ 27,245 $ 552 $ -- $ 27,797 ================= ================ ================ ============== Total Assets $ 1,331,130 $ 11,469 $ (9,844) $ 1,332,755 ================= ================ ================ ==============
- 13 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) The following table details each segment's contribution to our overall profitability and the identified assets attributable to each such segment for the nine months ended, and as of, September 30, 2004, respectively (in thousands):
Balance Sheet Investment Inter-Segment Investment Management Activities Total ----------------- ---------------- ---------------- -------------- Income from loans and other investments: Interest and related income $ 31,169 $ -- $ -- $ 31,169 Less: Interest and related expenses on credit facilities, term redeemable securities contract and repurchase obligations 8,848 -- -- 8,848 Less: Interest and related expenses on convertible junior subordinated debentures 6,417 -- -- 6,417 ----------------- ---------------- ---------------- -------------- Income from loans and other investments, net 15,904 -- -- 15,904 ----------------- ---------------- ---------------- -------------- Other revenues: Management and advisory fees -- 8,264 (2,239) 6,025 Income/(loss) from equity investments in Funds 1,420 (294) -- 1,126 Gain on sales of investments 300 -- -- 300 Other interest income 24 240 (229) 35 ----------------- ---------------- ---------------- -------------- Total other revenues 1,744 8,210 (2,468) 7,486 Other expenses: General and administrative 4,248 8,118 (2,239) 10,127 Other interest expense 229 -- (229) -- Depreciation and amortization 634 188 -- 822 ----------------- ---------------- ---------------- -------------- Total other expenses 5,111 8,306 (2,468) 10,949 ----------------- ---------------- ---------------- -------------- Income before income taxes 12,537 (96) -- 12,441 Provision for income taxes -- -- -- -- ----------------- ---------------- ---------------- -------------- Net income $ 12,537 $ (96) $ -- $ 12,441 ================= ================ ================ ============== Total Assets $ 787,575 $ 13,537 $ (14,120) $ 786,992 ================= ================ ================ ==============
- 14 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) The following table details each segment's contribution to our overall profitability and the identified assets attributable to each such segment for the three months ended, and as of, September 30, 2005, respectively (in thousands):
Balance Sheet Investment Inter-Segment Investment Management Activities Total ----------------- ---------------- ---------------- -------------- Income from loans and other investments: Interest and related income $ 22,751 $ -- $ -- $ 22,751 Less: Interest and related expenses on credit facilities, term redeemable securities contract and repurchase obligations 10,325 -- -- 10,325 ----------------- ---------------- ---------------- -------------- Income from loans and other investments, net 12,426 -- -- 12,426 ----------------- ---------------- ---------------- -------------- Other revenues: Management and advisory fees -- 2,711 (1,194) 1,517 Income/(loss) from equity investments in Funds 528 (61) -- 467 Other interest income 111 26 -- 137 ----------------- ---------------- ---------------- -------------- Total other revenues 639 2,676 (1,194) 2,121 ----------------- ---------------- ---------------- -------------- Other expenses: General and administrative 2,026 4,484 (1,194) 5,316 Other interest expense -- -- -- -- Depreciation and amortization 211 67 -- 278 ----------------- ---------------- ---------------- -------------- Total other expenses 2,237 4,551 (1,194) 5,594 ----------------- ---------------- ---------------- -------------- Income before income taxes 10,828 (1,875) -- 8,953 Provision for income taxes -- (846) -- (846) ----------------- ---------------- ---------------- -------------- Net income allocable to class A common stock $ 10,828 $ (1,029) $ -- $ 9,799 ================= ================ ================ ==============
All revenues were generated from external sources within the United States. The Balance Sheet Investment segment paid the Investment Management segment fees of $1,194,000 and $3,574,000, respectively, for management of the segment for the three and nine months ended September 30, 2005 and $8,000 for inter-segment interest for the nine months ended September 30, 2005, which is reflected as offsetting adjustments to other revenues and other expenses in the Inter-Segment Activities column in the tables above. - 15 - Capital Trust, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (unaudited) The following table details each segment's contribution to our overall profitability and the identified assets attributable to each such segment for the three months ended, and as of, September 30, 2004, respectively (in thousands):
Balance Sheet Investment Inter-Segment Investment Management Activities Total ------------------- ----------------- --------------------- ---------------- Income from loans and other investments: Interest and related income $ 12,979 $ -- $ -- $ 12,979 Less: Interest and related expenses on credit facilities, term redeemable securities contract and repurchase obligations 3,758 -- -- 3,758 Less: Interest and related expenses on convertible junior subordinated debentures 1,552 -- -- 1,552 ------------------- ----------------- --------------------- ---------------- Income from loans and other investments, net 7,669 -- -- 7,669 ------------------- ----------------- --------------------- ---------------- Other revenues: Management and advisory fees -- 2,745 (835) 1,910 Income/(loss) from equity investments in Funds 409 (108) -- 301 Gain on sales of investments -- -- -- -- Other interest income 14 40 (35) 19 ------------------- ----------------- --------------------- ---------------- Total other revenues 423 2,677 (870) 2,230 ------------------- ----------------- --------------------- ---------------- Other expenses: General and administrative 1,446 3,385 (835) 3,996 Other interest expense 35 -- (35) -- Depreciation and amortization 212 62 -- 274 ------------------- ----------------- --------------------- ---------------- Total other expenses 1,693 3,447 (870) 4,270 ------------------- ----------------- --------------------- ---------------- Income before income taxes 6,399 (770) -- 5,629 Provision for income taxes -- (229) -- (229) ------------------- ----------------- --------------------- ---------------- Net income $ 6,399 $ (541) $ -- $ 5,858 =================== ================= ===================== ================
All revenues were generated from external sources within the United States. The Balance Sheet Investment segment paid the Investment Management segment fees of $835,000 and $2,239,000, respectively, for management of the segment and $35,000 and $229,000, respectively, for inter-segment interest for the three and nine months ended September 30, 2004, which is reflected as offsetting adjustments to other revenues and other expenses in the Inter-Segment Activities column in the tables above. - 16 - 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 our future financial position and results of operations. Introduction We are a fully integrated, self-managed finance and investment management company that specializes in credit-sensitive structured financial products. To date, our investment activities have focused primarily on the U.S. commercial real estate subordinate debt markets. From the commencement of our finance business in 1997 through September 30, 2005, we have completed over $5.6 billion of real estate-related investments both directly and on behalf of our managed funds. We conduct our operations as a real estate investment trust, or REIT, for federal income tax purposes. Currently, we make balance sheet investments for our own account and manage a series of private equity funds on behalf of institutional and individual investors. Since commencement of our investment management business in March 2000, we have co-sponsored three funds: CT Mezzanine Partners I LLC, CT Mezzanine Partners II LP and CT Mezzanine Partners III, Inc., which we refer to as Fund I, Fund II and Fund III, respectively. Balance Sheet Overview During the nine months ended September 30, 2005, we made eighteen investments in commercial mortgage-backed securities, or CMBS, with a total purchase price of $205.4 million ($229.9 million face value). Fourteen investments with a total purchase price of $165.5 million ($190.0 million face value) earn interest at fixed rates with a weighted average stated coupon of 6.26% and four investments with a total purchase price of $39.9 million ($39.9 million face value) earn interest at variable rates with a weighted average stated coupon of LIBOR plus 1.91% (5.77% at September 30, 2005). In addition, one CMBS investment with a face value of $1.8 million was repaid in full during the period. At September 30, 2005, we had thirty six investments in twenty five separate CMBS issues with an aggregate face value of $493.1 million. CMBS with a face value of $98.9 million earn interest at variable rates and have coupons averaging LIBOR plus 2.64% (6.50% at September 30, 2005). The remaining CMBS, $394.2 million face value, earn interest at fixed rates and have coupons averaging 6.98%. In the aggregate, we purchased the CMBS at total discounts to face value of $69.4 million and expected to recover, net of anticipated losses, $42.6 million of that amount, which we amortize over the lives of the securities. As of September 30, 2005, the remaining discount to be amortized into income over the remaining lives of the securities was $18.8 million. At September 30, 2005, the weighted average coupon of the entire CMBS portfolio was 6.88%. As of September 30, 2005, the securities were carried at market value of $455.5 million, reflecting a $12.2 million net unrealized gain to the amortized cost of the portfolio and other than temporary write-downs taken in 2004 on two securities of $5.3 million. On August 4, 2005, pursuant to the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, we made a decision to change the accounting classification of our CMBS investments from available for sale to held to maturity. In accordance with this decision, CMBS with an amortized cost of $410.0 million and a market value of $422.3 million were reclassified from available for sale to held to maturity. As was the case prior to this reclassification, the difference between amortized cost and expected recovery on these investments will continue to be accreted through the income statement using the level yield method accretion schedules in place prior to the reclassification. The difference between amortized cost and market value as of the reclassification date, $12.2 million, was segregated within accumulated other comprehensive income and will be amortized over the remaining life of the securities using the level yield method without impact to the income statement. We made the decision to reclassify these investments based upon our intent and ability to hold these investments to maturity. Going forward, new originations of held to maturity investments will be stated at cost plus the amortization of any premiums or discounts and any premiums or discounts will be amortized through the income statement using the level yield method. Other than in the instance of impairment, these held to maturity investments will be shown in our financial statements at their adjusted values pursuant to the methodology described above. - 17 - During the nine months ended September 30, 2005, we originated seven property mezzanine loans for $169.6 million (of which $144.5 million was funded as of September 30, 2005) and 25 B Notes for $375.5 million. In addition, we received partial repayments on five property mezzanine loans and 27 B Notes totaling $45.5 million and three property mezzanine loans and twenty three B Notes totaling $215.4 million were satisfied and repaid. We have outstanding unfunded loan commitments at September 30, 2005 of $25.0 million. At September 30, 2005, we had 73 performing loans receivable with a current carrying value of $812.2 million. Six of the loans totaling $130.4 million bear interest at an average fixed rate of interest of 9.27%. The 67 remaining loans, totaling $681.8 million bear interest at a variable rate of interest averaging LIBOR plus 3.78% (7.64% at September 30, 2005). One mortgage loan receivable with an original principal balance of $8.0 million matured on July 15, 2001 but has not been repaid with respect to principal and interest. In December 2002, the loan was written down to $4.0 million through a charge to the allowance for possible credit losses. Since the write-down, we have received cash collections of $962,000 reducing the carrying value of the loan to $3.0 million. In accordance with our policy for revenue recognition, income recognition has been suspended on this loan and for the three months ended September 30, 2005, $277,000 of potential interest income was not recorded. All other loans are performing in accordance with their terms. On at least a quarterly basis, management reevaluates the reserve for possible credit losses based upon our current portfolio of loans. Each loan is evaluated using our proprietary loan risk rating system, which considers loan to value, debt yield, cash flow stability, exit plan, sponsorship, loan structure and any other factors necessary to assess the likelihood of delinquency or default. If we believe that there is a potential for delinquency or default, a downside analysis is prepared to estimate the value of the collateral underlying our loan, and this potential loss is multiplied by our estimate of the likelihood of default. Based upon our detailed review at September 30, 2005, we concluded that a reserve for possible credit losses was not warranted. At September 30, 2005, we had investments in Funds of $16.5 million, including $4.8 million of unamortized costs capitalized in connection with entering into our venture agreement with Citigroup Alternative Investments LLC and the commencement of the related fund management business. These costs are being amortized over the lives of the Funds and the venture agreement, and are reflected as a reduction in income/(loss) from equity investments in Funds. With our issuance of collateralized debt obligations, commonly known as CDOs, we have substantially restructured the manner in which we finance our business. While we still borrow under our repurchase agreements, 84% of our debt is in the form of CDOs at September 30, 2005. The CDOs we have issued generally carry lower interest rates and allow for higher levels of leverage than our previously utilized financing sources. On August 4, 2005, we issued our third collateralized debt obligation that we refer to as CDO III. CDO III is secured by a static pool of $341.3 million of fixed rate subordinate CMBS. At issuance, we sold notes rated AAA through BBB with a total face value of $269.6 million to third parties for proceeds of $272.2 million. We retained all of the unrated and below investment grade rated notes, the BBB- rated notes and the preferred equity interests. The fixed rate notes we sold carry a weighted average coupon of 5.22% and because of the $2.6 million premium at which they were sold, have an effective cash cost to us of 5.17%. The issuance represents term and index matched, non-recourse and non-mark to market financing for the underlying collateral. We incurred $2.1 million of issuance costs that will be amortized on a level yield basis over the average life of the CDO. Including the amortization of the issuance costs, the all in effective rate for the notes sold was 5.25%. For accounting purposes, the CDO is consolidated in our financial statements. On March 15, 2005, we issued our second collateralized debt obligation that we refer to as CDO II. CDO II is a reinvesting CDO secured by $337.8 million of mezzanine loans, B Notes, subordinate CMBS and cash. At issuance, we sold notes rated AAA to BBB- with a face value of $298.9 million to third parties at par. The notes we sold bear interest at a weighted average floating rate of LIBOR plus 0.49% (4.35% at September 30, 2005). We retained all of the unrated and below investment grade rated notes and the preferred equity interests. We incurred $5.2 million of issuance costs which will be amortized on a level yield basis over the average life of the CDO. Including the amortization of the issuance costs, the all in effective rate for the notes sold was LIBOR plus 0.71% (4.57% at September 30, 2005). CDO II was structured with a five year reinvestment period that allows us to reinvest principal proceeds from collateral repayments into new investments, effectively extending the life of the financing. For accounting purposes, the CDO is consolidated in our financial statements. - 18 - At September 30, 2005, we had collateralized debt obligations outstanding from three separate issuances with a total face value of $821.3 million. CDOs are recorded on the balance sheet at $823.8 million, representing the amortized sales price of the securities sold to third parties. In total, our two floating rate CDOs provide us with $551.7 million of debt financing at a stated average interest rate of LIBOR + 0.55% (4.41% at September 30, 2005) and an all-in effective rate (including the amortization of issuance costs) LIBOR + 0.87% (4.73% at September 30, 2005). Our fixed rate CDO provides us with $269.6 million of notional balance financing (which we sold for proceeds of $272.2 million) with a cash cost of 5.22% (5.17% based upon proceeds) and an all in effective interest rate of 5.25%. At September 30, 2005, we were party to repurchase agreements with four securities dealers with total repurchase commitments of $650.0 million and had total outstanding borrowings of $157.8 million. The weighted average cash borrowing cost for all the repurchase agreements outstanding at September 30, 2005 was LIBOR plus 1.06% (4.92% at September 30, 2005). Assuming no additional utilization under the repurchase agreements and including the amortization of all fees paid and capitalized over the remaining term of the repurchase agreements, the all-in effective borrowing cost was LIBOR plus 1.34% (5.20% at September 30, 2005). At September 30, 2005, if all of the assets pledged under repurchase agreements were drawn upon, we could obtain an additional $123.6 million of financing. We were party to six cash flow interest rate swaps with a total notional value of $133.5 million as of September 30, 2005. These cash flow interest rate swaps effectively convert floating rate debt to fixed rate debt, which is utilized to finance assets that earn interest at fixed rates. We receive a rate equal to LIBOR (3.78% at September 30, 2005) and pay an average rate of 4.43%. The market value of the swaps at September 30, 2005 was $1.1 million, which is recorded as an interest rate hedge asset and as a component of accumulated other comprehensive gain/(loss) on our balance sheet. At September 30, 2005, we had 15,158,447 shares of our class A common stock outstanding. Investment Management Overview We operated principally as a balance sheet investor until the start of our investment management business in March 2000, when we entered into a venture with affiliates of Citigroup Alternative Investments to co-sponsor and invest capital in a series of commercial real estate mezzanine investment funds managed by us. Pursuant to the venture agreement, we have co-sponsored with Citigroup Alternative Investments Fund I, Fund II and Fund III. We have capitalized costs of $4.8 million net, from the formation of the venture and the Funds that are being amortized over the remaining anticipated lives of the Funds and the related venture agreement. Fund I has concluded its operations and been dissolved. Fund II had its initial closing on equity commitments on April 9, 2001 and its final closing on August 7, 2001, ultimately raising $845.2 million in equity commitments, including $49.7 million (5.9%) from us and $198.9 million (23.5%) from Citigroup Alternative Investments. Third-party private equity investors, including public and corporate pension plans, endowment funds, financial institutions and high net worth individuals, made the balance of the equity commitments. During its two-year investment period, which expired on April 9, 2003, Fund II invested $1.2 billion in 40 separate transactions. CT Investment Management Co. LLC, our wholly-owned taxable REIT subsidiary, 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 Fund II's investment period, CT Investment Management Co. earns annual base management fees calculated at a rate equal to 1.287% of invested capital. We and Citigroup Alternative Investments, through our collective ownership of the general partner of Fund II, which we refer to as Fund II GP, are 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 Citigroup Alternative Investments and us. We received our first such payment totaling $6.2 million on March 29, 2005, a payment of $1.2 million on June 24, 2005 and an additional payment of $428,000 on September 26, 2005, reflecting 50% of the total incentive management fees paid to the general partner. In connection with the receipt of the incentive management fees, Fund II GP, which is 50% owned by us and the - 19 - general partner of Fund II, expensed costs that it had previously capitalized of $2.4 million, of which $1.2 million flowed through to us. The payment of the incentive management fees by Fund II reduced the value of our investment in Fund II and Fund II GP by $1.1 million, reflecting our proportionate share of the incentive management payment. In addition, we have and will continue to pay 25% of our share of the Fund II incentive management fees as long-term incentive compensation to our employees. The amount of future additional incentive fees to be received will depend upon a number of factors, including the level of interest rates and the fund's ability to generate additional returns, 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 remaining assets were sold and liabilities were settled on October 1, 2005 at the recorded book value, and the fund's equity and income were distributed, we would record approximately $2.1 million of additional gross incentive fees. We do not anticipate making any additional equity contributions to Fund II or its general partner. Our net investment in Fund II and its general partner at September 30, 2005 was $1.8 million. As of September 30, 2005, Fund II had 7 outstanding loans and investments totaling $67.8 million, all of which were performing in accordance with the terms of their agreements. Fund III effected its initial closing on equity commitments on June 2, 2003 and its final closing on August 8, 2003, raising a total of $425.0 million in equity commitments, including our equity commitment of $20.0 million (4.7%) and Citigroup Alternative Investments' equity commitment of $80.0 million (18.8%). From the initial closing through September 30, 2005, we have made equity investments in Fund III of $15.9 million. Through September 30, 2005, Fund III had made 35 loans and investments of approximately $1.2 billion. As of September 30, 2005, Fund III had 19 outstanding loans and investments totaling $536.9 million, all of which were performing in accordance with the terms of their agreements. CT Investment Management Co. 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 expired June 2, 2005) and 1.42% of invested capital thereafter. We and our co-sponsor 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. We will receive 62.5% and our co-sponsor will receive 37.5% of the total incentive management fees. We intend to distribute a portion (up to 40%) of our share of the Fund III incentive management fees as long-term incentive compensation to our employees. If Fund III's remaining assets were sold and liabilities were settled on October 1, 2005 at recorded book value and the Fund's equity and income were distributed, we would record approximately $5.4 million of additional gross incentive management fees. Three and Nine Months Ended September 30, 2005 Compared to Three and Nine Months Ended September 30, 2004 We reported net income of $9.8 million for the three months ended September 30, 2005, an increase of $3.9 million from the net income of $5.9 million for the three months ended September 30, 2004. We reported net income of $27.8 million for the nine months ended September 30, 2005, an increase of $15.4 million from the net income of $12.4 million for the nine months ended September 30, 2004. These increases were primarily the result of an increase in net interest income from loans and other investments, the receipt of incentive management fees from Fund II and the reduction of our cost of debt through the use of CDOs. Interest and related income from loans and other investments amounted to $57.4 million for the nine months ended September 30, 2005, an increase of $26.2 million from the $31.2 million amount for the nine months ended September 30, 2004. Average interest-earning assets increased from approximately $479.0 million for the nine months ended September 30, 2004 to approximately $963.5 million for the nine months ended September 30, 2005. The average interest rate earned on such assets decreased from 8.7% for the nine months ended September 30, 2004 to 7.9% for the nine months ended September 30, 2005. During the nine months ended September 30, 2005, we recognized $1.3 million in additional income on the early repayment of loans. The decrease in rates was due primarily to a change in the mix of our investment portfolio to include more lower risk B Notes in 2005 (which generally carry lower interest rates than mezzanine loans) and a general decrease in credit spreads obtained on newly originated investments, partially offset by a higher average LIBOR rate, which increased by 1.8% from 1.3% for the nine months ended September 30, 2004 to 3.1% for the nine months ended September 30, 2005. - 20 - Interest and related income from loans and other investments amounted to $22.8 million for the three months ended September 30, 2005, an increase of $9.8 million from the $13.0 million amount for the three months ended September 30, 2004. Average interest-earning assets increased from approximately $638.6 million for the three months ended September 30, 2004 to approximately $1,122.5 million for the three months ended September 30, 2005. The average interest rate earned on such assets decreased from 8.1% for the three months ended September 30, 2004 to 7.9% for the three months ended September 30, 2005. During the three months ended September 30, 2005, we recognized $501,000 in additional income on the early repayment of loans. The decrease in rates was again due primarily to a change in the mix of our investment portfolio to include more lower risk B Notes in 2005 (which generally carry lower interest rates than mezzanine loans) as higher rate mezzanine loans are paid down and a general decrease in credit spreads obtained on newly originated investments, and was partially offset by a higher average LIBOR rate, which increased by 2.0% from 1.6% for the three months ended September 30, 2004 to 3.6% for the three months ended September 30, 2005. We utilize our repurchase obligations and CDOs to finance our interest-earning assets. Interest and related expenses on secured debt amounted to $23.7 million for the nine months ended September 30, 2005, an increase of $14.9 million from the $8.8 million amount for the nine months ended September 30, 2004. The increase in expense was due to an increase in the amount of average interest-bearing liabilities outstanding from approximately $281.9 million for the nine months ended September 30, 2004 to approximately $693.8 million for the nine months ended September 30, 2005 and an increase in the average rate paid on interest-bearing liabilities from 4.2% to 4.5% for the same periods. The increase in the average rate is substantially due to increases in the average LIBOR rate, which increased by 1.8% from 1.3% for the nine months ended September 30, 2004 to 3.1% for the nine months ended September 30, 2005, and was partially offset by the use of CDOs to finance a large portion of the portfolio at lower credit spreads than obtained under the credit facility and term redeemable securities contract. Interest and related expenses on secured debt amounted to $10.3 million for the three months ended September 30, 2005, an increase of $6.6 million from the $3.8 million amount for the three months ended September 30, 2004. The increase in expense was due to an increase in the amount of average interest-bearing liabilities outstanding from approximately $412.2 million for the three months ended September 30, 2004 to approximately $847.1 million for the three months ended September 30, 2005, and an increase in the average rate paid on interest-bearing liabilities from 3.60% to 4.77% for the same periods. The increase in the average rate is again substantially due to the increase in average LIBOR rate, which increased by 2.0% from 1.6% for the three months ended September 30, 2004 to 3.6% for the three months ended September 30, 2005, and was partially offset by the use of CDOs to finance a large portion of the portfolio at lower credit spreads than obtained under the credit facility and term redeemable securities contract. Prior to September 29, 2004, we also utilized the convertible junior subordinated debentures to finance our interest-earning assets. During the three and nine months ended September 30, 2004, we recognized $1.6 million and $6.4 million, respectively of expenses related to the convertible junior subordinated debentures. No expense was recorded for the three and nine months ended September 30, 2005 as the liability was extinguished in 2004 upon the conversion of one half of the principal amount due on the debentures into common stock on July 28, 2004 and the conversion of the remaining amount due on the debentures into common stock on September 29, 2004. Other revenues increased $4.2 million from $7.5 million for the nine months ended September 30, 2004 to $11.7 million for the nine months ended September 30, 2005. The increase is primarily due to the receipt of incentive management fees from Fund II of $7.8 million during the nine months ended September 30, 2005. In connection with the receipt of the incentive management fees, Fund II GP, which is 50% owned by us and is the general partner of Fund II, expensed costs that it had previously capitalized of $2.4 million, of which $1.2 million flowed through to us. This was partially offset by a decrease in base management fees and investment income from Fund II, due to lower levels of investment in 2005 as the fund winds down and a decrease in the base management fees and investment income from Fund III, as Fund III reached the end of its investment period on June 2, 2005 and the fees are now charged on invested capital as opposed to committed capital. Other revenues decreased $109,000 from $2.2 million for the three months ended September 30, 2004 to $2.1 million for the three months ended September 30, 2005. The decrease is due to lower levels of base management fees and investment income from Fund II and Fund III, which was partially offset by the receipt of incentive management fees from Fund II of $428,000 during the three months ended September 30, 2005. In connection with - 21 - the receipt of the incentive management fees, Fund II GP, which is 50% owned by us and the general partner of Fund II, expensed costs that it had previously capitalized of $52,000, of which $26,000 flowed through to us. General and administrative expenses increased $6.3 million to $16.4 million for the nine months ended September 30, 2005 from $10.1 million for the nine months ended September 30, 2004. The increase in general and administrative expenses was primarily due to the allocation of Fund II incentive management fees for payment to employees (representing 25% of the total received, or $2.0 million), increases in employee compensation expense from the issuance of additional restricted stock and the timing of the annual bonus accrual, due diligence costs of $475,000 from an abandoned corporate acquisition and additional expenses related to the services provided under our contract with Global Realty Outsourcing, Inc. which began in April 2004. General and administrative expenses increased $1.3 million to $5.3 million for the three months ended September 30, 2005 from $4.0 million for the three months ended September 30, 2004. The increase in general and administrative expenses was primarily due to increases in employee compensation expense from the issuance of additional restricted stock, the timing of the annual bonus accrual and the allocation of Fund II incentive management fees for payment to employees (representing 25% of the total received, or $107,000). We have made 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 ended December 31, 2003. As a REIT, we generally are not subject to federal income tax. To maintain qualification as a REIT, we must distribute at least 90% of our REIT taxable income to our shareholders and meet certain other requirements. If we fail to qualify as a REIT in any taxable three months, we will be subject to federal income tax on our taxable income at regular corporate rates. We may also be subject to certain state and local taxes on our income and property. Under certain circumstances, federal income and excise taxes may be due on our undistributed taxable income. At September 30, 2005 and 2004, we were in compliance with all REIT requirements and, as such, have not provided for income tax expense on our REIT taxable income for the three or the nine months ended September 30, 2005 and 2004. We also have taxable REIT subsidiaries which are subject to tax at regular corporate rates. During the nine months ended September 30, 2005 and 2004, we recorded $315,000 and $0, respectively, of income tax expense. This increase resulted from increased taxable income in our taxable REIT subsidiaries primarily due to incentive management fees recognized from Fund II. Liquidity and Capital Resources At September 30, 2005, we had $14.4 million in cash. Our primary sources of liquidity for the remainder of 2005 are expected to be cash on hand, cash generated from operations, principal and interest payments received on loans and investments, and additional borrowings under our repurchase obligations. We believe these sources of capital will be adequate to meet future cash requirements for 2005. We expect that during 2005, we will use a significant amount of our available capital resources to originate or purchase new loans and investments for our balance sheet. We intend to continue to employ leverage on our balance sheet assets to enhance our return on equity. We experienced a net decrease in cash of $10.2 million for the nine months ended September 30, 2005, compared to a net decrease of $775,000 for the nine months ended September 30, 2004. Cash provided by operating activities during the nine months ended September 30, 2005 was $27.9 million, compared to $10.4 million during the same period of 2004. For the nine months ended September 30, 2005, cash used in investing activities was $447.2 million, compared to $346.8 million during the same period in 2004. The change was primarily due our increased loan and investment originations partially offset by increased levels of principal collections when comparing the first nine months of 2005 to the same period in 2004. We financed the increased investment activity with additional borrowings under our repurchase obligations and CDOs. This accounted for substantially all of the change in the net cash activity from financing activities. At September 30, 2005, we had outstanding borrowings under our outstanding CDOs of $823.8 million and outstanding repurchase obligations totaling $157.8 million. At September 30, 2005, we had pledged assets that enable us to obtain an additional $123.6 million of financing under our repurchase agreements. At September 30, 2005, we had $492.2 million of credit available for the financing of new and existing unpledged assets pursuant to our credit facility and repurchase agreements. - 22 - Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Impact of Inflation Our operating results depend in part on the difference between the interest income earned on our interest-earning assets and the interest expense incurred in connection with our interest-bearing liabilities. Changes in the general level of interest rates prevailing in the economy in response to changes in the rate of inflation or otherwise can affect our income by affecting the spread between our interest-earning assets and interest-bearing liabilities, as well as, among other things, the value of our interest-earning assets and our ability to realize gains from the sale of assets and the average life of our interest-earning assets. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control. We employ the use of correlated hedging strategies to limit the effects of changes in interest rates on our operations, including engaging in interest rate swaps and interest rate caps to minimize our exposure to changes in interest rates. There can be no assurance that we will be able to adequately protect against the foregoing risks or that we will ultimately realize an economic benefit from any hedging contract into which we enter. 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 our 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. Our 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. We assume 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 we believe 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 our Annual Report on Form 10-K, filed on March 10, 2005 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. - 23 - ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The principal objective of our asset/liability management activities is to maximize net interest income, while managing levels of interest rate risk. Net interest income and interest expense are subject to the risk of interest rate fluctuations. In certain instances, to mitigate the impact of fluctuations in interest rates, we use interest rate swaps to effectively convert 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 we do not use derivative financial instruments for trading purposes. We use 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. Our loans and investments, including our fund investments, are also subject to credit risk. The ultimate performance and value of our loans and investments depends upon the owner's ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due us. To monitor this risk, our asset management team continuously reviews the investment portfolio and in certain instances is in constant contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary. The following table provides information about our financial instruments that are sensitive to changes in interest rates at September 30, 2005. 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 ------------------------------------------------------------------------------ 2005 2006 2007 2008 2009 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- ---------- Assets: (dollars in thousands) Commercial Mortgage- backed Securities Fixed Rate -- -- $ 5, 135 $ 3,783 $ 5,380 $351,520 $365,818 $356,574 Average interest rate -- -- 4.96% 6.37% 9.66% 8.49% 8.37% Variable Rate $ 38 $ 6,677 $ 13,659 $ 65,001 $ 14,000 $ 1,305 $100,680 $ 99,098 Average interest rate 4.89% 4.89% 6.04% 6.12% 5.24% 36.79% 6.40% Loans receivable Fixed Rate $ 233 $ 1,055 $ 8,050 $ 47,975 $ 775 $ 73,616 $131,704 $139,246 Average interest rate 10.56% 9.90% 8.31% 11.77% 8.18% 8.01% 9.42% Variable Rate $ 22,803 $ 239,957 $202,529 $ 41,112 $ 79,106 $106,299 $691,806 $686,931 Average interest rate 8.71% 7.40% 7.66% 7.80% 6.83% 7.80% 7.54% Total Return Swap Variable Rate -- $ 4,000 -- -- -- -- $ 4,000 $ 4,000 Average interest rate -- 20.56% -- -- -- -- 20.56% Interest rate swaps Notional amounts $ 84 $ 377 5,826 $ 490 $ 28,857 $ 97,816 $133,450 $ 1,070 Average fixed pay rate 3.69% 3.77% 3.21% 4.23% 4.58% 4.46% 4.43% Average variable receive rate 3.80% 3.80% 3.80% 3.80% 3.80% 3.78% 3.78% Liabilities: Repurchase obligations Variable Rate -- $ 43,266 $ 46,793 $ 40,710 -- $ 27,005 $157,774 $157,774 Average interest rate -- 4.18% 5.74% 4.70% -- 5.03% 4.92% Collateralized debt obligations Variable Rate $ 5,000 $ 92,252 $105,871 $618,162 $821,285 $823,817 Average interest rate 6.01% 4.66% 4.69% 5.07% 4.98%
- 24 - ITEM 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures An evaluation of the effectiveness of the design and operation of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Securities 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 us in reports filed or submitted under the Securities Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Controls There have been no significant changes in our "internal control over financial reporting" (as defined in rule 13a-15(f) under the Securities Exchange Act) that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. - 25 - PART II. OTHER INFORMATION ITEM 1: Legal Proceedings None ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds None ITEM 3: Defaults Upon Senior Securities None ITEM 4: Submission of Matters to a Vote of Security Holders None ITEM 5: Other Information On August 16, 2005, Capital Trust, Inc. (the "Company") entered into a $75 million Master Repurchase Agreement (the "Repurchase Agreement") with Bear, Stearns Funding, Inc. ("Bear"). The Repurchase Agreement expires on August 15, 2008, although may terminate prior to such date in accordance with its provisions. Subject to the terms and conditions thereof, the Repurchase Agreement provides for the purchase, sale and repurchase of, inter alia, commercial mortgage loans, commercial mezzanine loans, B-notes and commercial mortgage-backed securities and other mutually agreed upon collateral and bears interest at varying rates over LIBOR based upon the type of asset included in the repurchase obligation. - 26 - ITEM 6: Exhibits 3.1 Charter of Capital Trust, Inc. (filed as Exhibit 3.1.a to the Company's Current Report on Form 8-K (File No. 1-14788) filed on April 2, 2003 and incorporated herein by reference). 3.2 Amended and Restated Bylaws of Capital Trust, Inc. (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K (File No. 1-14788) filed on January 29, 1999 and incorporated herein by reference). 3.3 First Amendment to Amended and Restated Bylaws of Capital Trust, Inc. (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q (File No. 1-14788) filed on August 16, 2004 and incorporated herein by reference). o 10.1 Master Repurchase Agreement, dated as of July 29, 2005, by and between the Company and Morgan Stanley Bank. o 10.2 Master Repurchase Agreement, dated as of July 29, 2005, by and among the Company, CT RE CDO 2004-1 Sub, LLC, CT RE CDO 2005-1 Sub, LLC and Morgan Stanley Bank. o 10.3 Master Repurchase Agreement, dated as of August 16, 2005, by and between the Company and Bear, Stearns Funding, Inc. o 10.4 Letter Agreement, dated as of August 16, 2005, by and between the Company and Bear, Stearns Funding, 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). o 31.1 Certification of John R. Klopp, Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. o 31.2 Certification of Geoffrey G. Jervis, Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. o 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. o 32.2 Certification of Geoffrey G. Jervis, 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 (File No. 1-14788), filed on March 10, 2005 and incorporated herein by reference). o Filed herewith. - 27 - SIGNATURES Pursuant to the requirements 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. October 31, 2005 /s/ John R. Klopp - ---------------- ----------------- Date John R. Klopp Chief Executive Officer October 31, 2005 /s/ Geoffrey G. Jervis - ---------------- ----------------------- Date Geoffrey G. Jervis Chief Financial Officer - 28 - EX-10 2 ex10-1.txt EX. 10.1 Exhibit 10.1 ================================================================================ MASTER REPURCHASE AGREEMENT FOR A REPURCHASE FACILITY IN AN AMOUNT UP TO $75,000,000 Dated as of July 29, 2005 CAPITAL TRUST, INC., as Seller MORGAN STANLEY BANK, as Buyer ================================================================================ TABLE OF CONTENTS Page RECITALS ................................................................1 Section 1. Applicability...................................................1 Section 2. Definitions and Accounting Matters..............................1 2.01. Certain Defined Terms...........................................1 2.02. Accounting Terms and Determinations............................15 Section 3. Transactions, Note and Prepayments.............................15 3.01. Transactions...................................................15 3.02. Confirmations..................................................16 3.03. Procedures for Transactions....................................16 3.04. Margin Maintenance.............................................21 Section 4. Payments; Computations; Etc....................................22 4.01. Repurchase of Transaction Assets; Periodic Advance Repurchase Payments............................................22 4.02. Payments.......................................................24 4.03. Computations...................................................24 4.04. [Intentionally Omitted.].......................................24 4.05. Booking of Transactions........................................24 4.06. Buyer's Funding of Eurodollar Rate Transactions................24 4.07. Income Payments................................................24 4.08. Compensation for Increased Costs...............................25 4.09. Limitation on Types of Transactions; Illegality................25 Section 5. Precautionary Collateral Security..............................26 5.01. Transaction Assets; Precautionary Security Interest............26 5.02. Further Assurances.............................................27 5.03. Changes in Locations, Name, etc................................27 5.04. Buyer's Appointment as Attorney-in-Fact........................28 5.05. Performance by Buyer of Seller's Obligations...................29 5.06. Proceeds.......................................................29 5.07. Remedies.......................................................29 5.08. Limitation on Duties Regarding Preservation of Transaction Asset Items........................................30 5.09. Powers Coupled with an Interest................................30 5.10. Release of Security Interest...................................30 5.11. Release of Transaction Assets..................................30 -i- TABLE OF CONTENTS (continued) Page 5.12. Substitution of Eligible Transaction Assets....................30 Section 6. Conditions Precedent...........................................31 6.01. Initial Transaction............................................31 6.02. Initial and Subsequent Transactions............................31 6.03. Additional Requirements........................................33 Section 7. Representations and Warranties.................................34 7.01. Existence......................................................34 7.02. Action.........................................................34 7.03. Litigation.....................................................34 7.04. No Breach......................................................34 7.05. Approvals......................................................35 7.06. Use of Proceeds; Margin Regulations............................35 7.07. Taxes..........................................................35 7.08. Investment Company Act.........................................35 7.09. Transaction Assets; Transfer of Ownership and Precautionary Collateral Security............................................35 7.10. Chief Executive Office.........................................36 7.11. Location of Books and Records..................................36 7.12. True and Complete Disclosure...................................36 7.13. ERISA..........................................................37 Section 8. Covenants of Seller............................................37 8.01. Financial Statements, Reports, etc.............................37 8.02. Litigation.....................................................38 8.03. Existence, etc.................................................38 8.04. Prohibition of Fundamental Changes.............................39 8.05. Aggregate Margin Maintenance Asset Value Deficiency............39 8.06. Notices........................................................39 8.07. Reports........................................................40 8.08. Transactions with Affiliates...................................40 8.09. Foreclosure or Other Remediation by Seller.....................40 8.10. Limitation on Liens............................................40 8.11. Limitation on Distributions....................................40 8.12. Maintenance of Ratio of Earnings Before Interest, Taxes, Depreciation and Amortization to Interest and Preferred Dividends............................................40 -ii- TABLE OF CONTENTS (continued) Page 8.13. Maintenance of Ratio of Total Indebtedness to Tangible Net Worth......................................................40 8.14. Servicer; Servicing Tape.......................................41 8.15. Remittance of Prepayments......................................41 Section 9. Events of Default..............................................41 Section 10. Remedies Upon Default..........................................43 Section 11. No Duty of Buyer...............................................43 Section 12. Miscellaneous..................................................43 12.01. Waiver.........................................................43 12.02. Notices........................................................43 12.03. Indemnification and Expenses...................................44 12.04. Amendments.....................................................45 12.05. Successors and Assigns.........................................45 12.06. Survival.......................................................45 12.07. Captions.......................................................45 12.08. Counterparts...................................................45 12.09. Agreement Constitutes Security Agreement; Governing Law........45 12.10. Submission to Jurisdiction; Waivers............................45 12.11. Waiver of Jury Trial...........................................46 12.12. Acknowledgments................................................46 12.13. Hypothecation or Pledge of Transactions........................46 12.14. Servicing......................................................46 12.15. Periodic Due Diligence Review..................................47 12.16. Intent.........................................................48 12.17. Change of Seller's State of Formation..........................48 12.18. Set-Off........................................................48 -iii- TABLE OF CONTENTS (continued) SCHEDULES - --------- SCHEDULE 1 Filing Jurisdictions and Offices SCHEDULE 2 Approved Appraisers SCHEDULE 3 Approved Engineers SCHEDULE 4 Approved Environmental Consultants SCHEDULE 5 Organizational Structure Chart of Seller EXHIBITS - -------- EXHIBIT A Form of Confirmation EXHIBIT B Form of Custodial Agreement EXHIBIT C [Intentionally Omitted] EXHIBIT D-1 Form of Existing Lender's Release Letter EXHIBIT D-2 Form of Seller's Release Letter EXHIBIT E Form of Bailee Agreement -iv- MASTER REPURCHASE AGREEMENT (as the same may be amended, supplemented or otherwise modified from time to time, this "Agreement"), dated as of July 29, 2005, between CAPITAL TRUST, INC., a Maryland corporation ("Seller"), and MORGAN STANLEY BANK, a Utah industrial bank ("Buyer"). RECITALS WHEREAS, Seller has requested that Buyer from time to time purchase Transaction Assets (as defined below) owned by Seller, and Buyer is prepared to enter into such Transactions (as defined below) upon the terms and conditions hereof. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Applicability. From time to time, the parties hereto may enter into transactions in which Seller agrees to transfer to Buyer certain Eligible Transaction Assets (as defined below) owned by Seller against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Eligible Transaction Assets at a date certain or on demand, against the transfer of funds by Seller. Each such transaction shall be referred to as a "Transaction" and, unless otherwise agreed in writing, shall be governed by this Agreement. Section 2. Definitions and Accounting Matters. 2.01. Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section or in other provisions of this Agreement in the singular will have the same meanings when used in the plural and vice versa): "Affiliate" shall mean (i) with respect to Buyer, any entity which controls, is controlled by, or is under common control with Buyer, and (ii) with respect to Seller, any affiliate of Seller as such term is defined in the Bankruptcy Code. "Aggregate Margin Maintenance Asset Value" shall mean the aggregate Margin Maintenance Asset Value of all Eligible Transaction Assets subject to all Transactions outstanding under this Agreement. "Aggregate Margin Maintenance Asset Value Deficiency" shall have the meaning provided in Section 3.04 hereof. "Agreement" shall have the meaning provided in the heading hereto. "Appraisal" means an appraisal of any Property prepared by a licensed appraiser listed on Schedule 2 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 File" shall mean, as to each Transaction Asset, those documents set forth in a schedule to be delivered by Seller to Custodian and which are delivered to the Custodian pursuant to the terms of this Agreement or the Custodial Agreement including, without limitation, all documents required by Buyer to transfer a valid ownership to Buyer and to grant and perfect a precautionary first priority security interest in such Transaction Asset. "Asset-Specific Transaction Balance" means a portion of the Purchase Price of the Transaction allocable to a specific Transaction Asset. Such portion initially consists of the sum of all Purchase Price payments with respect to the Transaction entered into on account of such Transaction Asset, without subtracting from such Purchase Price payments Buyer's Transaction Costs and other costs and fees to the extent advanced to Seller hereunder. Wherever this Agreement states that Repurchase Price prepayments on account of the Transaction are to be allocated or applied to or against the Asset-Specific Transaction Balance of a specific Transaction Asset, the Asset-Specific Transaction Balance of such Transaction Asset shall be deemed reduced accordingly by the amount of the Repurchase Price prepayments so applied. "Asset Value" shall mean, as of any date in respect of any Eligible Transaction Asset, the price at which such Eligible Transaction Assets could readily be sold as determined in the sole good faith of Buyer, which price may be determined to be zero, provided that, so long as no Event of Default shall have occurred and be continuing, the Asset Value of the Eligible Transaction Asset shall be reduced or increased, as the case may be, by the aggregate net Hedge Value in respect of any Interest Rate Protection Agreements as to which Buyer has a perfected security interest in all of Seller's right, title and interest therein; provided, further that the Asset Value, without giving effect to such increase, shall in no event exceed one hundred percent (100%) of the outstanding principal balance of the related Eligible Transaction Asset. Buyer'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 Agreement, Seller shall cooperate with Buyer in its determination of the Asset Value of each Eligible Transaction Asset (including, without limitation, providing all information and documentation in the possession of Seller regarding such Eligible Transaction Asset or otherwise required by Buyer in its sole good faith business discretion). "B Note" shall mean the original executed subordinated promissory note or other evidence (including a participation certificate and/or participation agreement) of a subordinated participation interest owned by Seller with respect to a Subordinate Mortgage Loan, Whole Loan or Mezzanine Loan. "Bailee" shall mean Paul, Hastings, Janofsky & Walker LLP or such other third party as Buyer may approve. "Bailee Agreement" shall mean the Bailee Agreement among Seller, Buyer and Bailee in the form of Exhibit E 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. -2- "Base Rate" means, as determined by Buyer on a daily basis, the lesser of (a) the rate per annum established by JPMorgan Chase from time to time as its "Prime" Rate or "reference" rate (which Seller acknowledges 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 Buyer in its sole discretion. "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. "Buyer" shall have the meaning provided in the heading hereto. "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 Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CDO" shall mean a collateral debt obligation transaction or a collateral loan obligation transaction, involving the issuance of classes of notes pursuant to an indenture, some of which classes of notes are rated by Fitch and Moody's or S&P or by Moody's and S&P. "CDO-1 Asset" shall mean a Transaction Asset or an Eligible Transaction Asset which is eligible to be placed in the Capital Trust RE CDO 2004-1. "CDO-2 Asset" shall mean a Transaction Asset or an Eligible Transaction Asset which is eligible to be placed in the Capital Trust RE CDO 2005-1. "CDO Pipeline Asset" shall mean, collectively, the CDO-1 Assets and the CDO-2 Assets. "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. "Collection Account" shall mean one or more accounts established by the Servicer subject to a security interest in favor of Buyer, into which all Collections shall be deposited by the Servicer. "Collections" shall mean all collections and proceeds on or in respect of any Transaction Asset, excluding collections required to be paid to the Servicer or a Transaction Asset Obligor on the Transaction Asset. "Confirmation" shall have the meaning provided in Section 3.02(a) hereof. "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. -3- "Custodial Agreement" shall mean the Custodial Agreement, dated as of the date hereof, among Seller, Custodian and Buyer, 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 Seller in connection with the sale of Eligible Transaction Assets to Buyer in the form of Annex 3 to the Custodial Agreement. "Custodian" shall mean Deutsche Bank National Trust Company 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. "Dollars" and "$" shall mean lawful money of the United States of America. "Due Diligence Review" shall mean the performance by Buyer of any or all of the reviews permitted under Section 12.15 hereof with respect to any or all of the Transaction Asset, as desired by Buyer from time to time. "Effective Date" shall mean the date upon which the conditions precedent set forth in Section 6.01 shall have been satisfied. "Eligible Transaction Assets" shall mean Subordinate Mortgage Loans, Whole Loans, Mezzanine Loans, B Notes, Preferred Equity Interests, CMBS, participation interests in any of the foregoing, and Other Approved Assets as to which the representations and warranties in Section 7.09 are correct and is eligible to be included in a "CDO" of which some classes of securities are rated by S&P and Moody's. "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. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "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 Seller 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 Seller is a member. "Eurocurrency Reserve Requirements" shall mean, for any day as applied to a Transaction, 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 -4- 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 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 Buyer 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 Transaction Asset, a period of thirty (30) days 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 15th day of each month, or, if such 15th day is not a Business Day, the Business Day immediately prior to such day; and (c) the initial Eurodollar Contract Period with respect to each Asset-Specific Transaction Balance shall commence on the related Purchase 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 Eurodollar Contract Period pertaining to a Transaction, a rate per annum determined by Buyer 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 Buyer shall be conclusive absent manifest error by Buyer: Eurodollar Base Rate ------------------------------ 1.00 minus Eurocurrency Reserve Requirements "Eurodollar Rate Spread" means as to each Purchase Rate the applicable Eurodollar Rate Spread set forth below opposite such Purchase Rate for the applicable Transaction Asset Type, or such other Eurodollar Rate Spread as may be mutually agreed to by Seller and Buyer:
- ------------------------- ----------------------- ----------------------------------------------- Eurodollar Rate Spread (expressed as percentage points per annum and Advance Rate as basis points) - ------------------------- ----------------------- ----------------------------------------------- CDO Pipeline Asset [****] [****] [****] - ------------------------- ----------------------- ----------------------- ----------------------- CDO-1 Asset [****] [****] [****] - ------------------------- ----------------------- ----------------------- ----------------------- CDO-2 Asset [****] [****] [****] - ------------------------- ----------------------- ----------------------- -----------------------
In the event that any CDO Pipeline Asset is not included in a CDO within 12 months from the Purchase Date of the applicable CDO Pipeline Asset, the Advance Rate and Eurodollar Rate Spread shall, upon the expiration of such 12 month period, be automatically modified to the corresponding Advance Rate and Eurodollar Rate set forth below: - -------- ****Material omitted pursuant to a request for confidential treatment under Rule 24b-2. Material filed separately with the Securities Exchange Commission. -5-
- --------------------------------------------- ------------- ---------------------------- Eurodollar Rate Spread (expressed as percentage Purchase points per annum and as Transaction Asset Type Rate basis points) - ---------------------- ---- ------------- - --------------------------------------------- ------------- ---------------------------- Whole Loans [****] [****] [****] - --------------------------------------------- ------------- -------------- ------------- B Notes, Preferred Equity Interests and [****] [****] [****] Mezzanine Loans and participation interests in any of the foregoing* ------------- -------------- ------------- (50% - 55% LTV maximum) [****] [****] [****] ------------- -------------- ------------- (56% - 60% LTV maximum) [****] [****] [****] ------------- -------------- ------------- (61% - 70% LTV maximum) [****] [****] [****] ------------- -------------- ------------- (71% - 75% LTV maximum) [****] [****] [****] - --------------------------------------------- ------------- -------------- ------------- (76% - 80% LTV maximum) [****] [****] [****] ------------- -------------- ------------- (81% - 85% LTV maximum) [****] [****] [****] ------------- -------------- ------------- (86% - 90% LTV maximum) [****] [****] [****] - --------------------------------------------- ------------- -------------- ------------- CMBS [****] [****] [****] Rating: [****] [****] [****] ------------- -------------- ------------- BBB [****] [****] [****] ------------- -------------- ------------- BBB- [****] [****] [****] ------------- -------------- ------------- BB+ [****] [****] [****] ------------- -------------- ------------- BB [****] [****] [****] ------------- -------------- ------------- BB- [****] [****] [****] - --------------------------------------------- ------------- -------------- ------------- B+ [****] [****] [****] ------------- -------------- ------------- B [****] [****] [****] ------------- -------------- ------------- B- [****] [****] [****] ------------- -------------- ------------- Unrated [****] [****] [****] - --------------------------------------------- ------------- -------------- -------------
* B Notes, Preferred Equity Interests and Mezzanine Loans and participations in any of the foregoing, in each case relating to hotel and other hospitality properties shall have a maximum LTV as determined by the Buyer in its sole discretion. "Eurodollar Substitute Rate" means a rate of interest equal to (a) the Base Rate minus (b) one percent (1%) per annum (100 basis points). "Event of Default" shall have the meaning provided in Section 9 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 quotations for the day of such transactions received by Buyer from three federal funds brokers of recognized standing selected by Buyer. "GAAP" shall mean tax basis accounting accrual method with amortizing expense modifications according to generally accepted accounting principles consistently applied. No other modifications to the cash basis accounting methodology shall be permitted except with the prior written approval of Buyer in its sole and absolute discretion. "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, Seller, any of its Subsidiaries or any of their properties. - ---------- ****Material omitted pursuant to a request for confidential treatment under Rule 24b-2. Material filed separately with the Securities Exchange Commission. -6- "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 an Underlying Property, to the extent required by Buyer. 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. "Income" shall mean, with respect to any Transaction Asset at any time, any principal thereof and all interest, dividends or other distributions thereon. "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 ninety (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; provided that indebtedness that is non-recourse to such Person shall not be included in Indebtedness. "Installment Date" shall have the meaning set forth in Section 4.01(a) hereof. "Interest Rate Protection Agreement" shall mean, with respect to any or all of the Subordinate Mortgage Loans, CMBS, Whole Loans and Mezzanine Loans, any short sale of U.S. 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 Seller (specifically with respect to such Transaction Asset) and acceptable to Buyer. "Late Fee" shall have the meaning set forth in Section 4.01(b) hereof. "Late Fee Rate" shall mean, in respect of any Repurchase Price amount of any Transaction or any other amount under this Agreement, that is not paid when due to Buyer (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. -7- "Lien" shall mean any mortgage, lien, pledge, charge, encumbrance, security interest or adverse claim. "Loan Asset" shall mean, as applicable, a Subordinate Mortgage Loan, Whole Loan or a Mezzanine Loan. "Loan-to-Value Ratio" or "LTV" shall mean, as to any Eligible Transaction Asset or Transaction Asset, as applicable, the ratio that (x) the aggregate (or individual) outstanding principal balances of any or all senior and pari passu loans and preferred equity interests secured in whole or in part by real property or direct or indirect beneficial interests therein relating to such Eligible Transaction Asset bears to (y) the value, determined by an Appraisal reasonably acceptable to Buyer, 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 Transaction Asset. "Margin Maintenance Asset Value" shall mean, with respect to Eligible Transaction Assets, the Asset Value of such Eligible Transaction Assets multiplied by the applicable Purchase Rate set forth in the definition of "Eurodollar Rate Spread" set forth herein or as otherwise defined or limited herein; provided that Margin Maintenance Asset Value may be deemed to be zero (or such greater amount as determined by Buyer in its sole discretion) with respect to each Eligible Transaction Asset (1) in respect of which there is a breach of a representation and warranty by a Transaction Asset 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 thirty (30) days (such period to include any applicable grace periods) unless otherwise approved by Buyer, (3) which has been released from the possession of the Custodian under the Custodial Agreement for a period in excess of that permitted under the Custodial Agreement, or (4) which exceeds the limitations on Margin Maintenance Asset Value set forth in the definition thereof. "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition or prospects of Seller taken as a whole, (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 principal of or interest on the Transactions or other amounts payable in connection therewith or (f) the aggregate value of the Transaction Asset. "Maximum Purchase Amount" shall mean Seventy Five Million Dollars ($75,000,000); provided that if Seller elects to reduce the Maximum Purchase Amount hereunder, any subsequent increase in the Maximum Purchase Amount following such reduction shall be within the sole discretion of the Buyer. "Maximum Purchase Rate" shall mean, as to Eligible Transaction Asset, the maximum Purchase Rate that shall be determined by Buyer in Buyer's sole and absolute discretion; provided that, with respect to the specific categories of Eligible Transaction Assets referred to in the definition of Eurodollar Rate Spread, the Maximum Purchase Rate shall not exceed the respective Purchase Rates set forth in such definition. "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. -8- "Monthly Statement" shall mean, for each calendar month during which this Agreement shall be in effect, Seller's reconciliation in arrears of beginning balances, interest, principal, paid-to-date and ending balances for each Transaction Asset, together with (a) a written report of any developments or events that are reasonably likely to have a Material Adverse Effect, (b) a written report of any and all written modifications to any documents underlying any Transaction Asset and (c) 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 this 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 Note" shall mean the original executed promissory note or other evidence of the indebtedness of a mortgagor with respect to a Subordinate Mortgage Loan or Whole Loan, as applicable. "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 Transaction Asset 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 Seller to Buyer or any Affiliate of Buyer including, without limitation, under this Agreement or any repurchase, loan or other agreement between Buyer, or an Affiliate of Buyer, and Seller. "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 Seller or any ERISA Affiliate and that is covered by Title IV of ERISA. "Officer's Certificate" shall mean the certificate of a Responsible Officer as set forth in Section 6.02(b) hereof. "Other Approved Assets" shall mean such Transaction Assets as approved on a case-by-case basis by Buyer in its sole discretion. "Periodic Advance Repurchase Payments" shall have the meaning set forth in Section 4.01(b) hereof. "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 Seller or any ERISA Affiliate during the five-year period ended immediately before the date of this Agreement or to which Seller or any ERISA Affiliate makes, is obligated to make or has, within the five-year period before the date of this 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. -9- "Preferred Equity Interest" shall mean any interest in a Person constituting a preferred share of stock or a preferred partnership or membership interest or other preferred right or interest in a Person that is not characterized as indebtedness under GAAP. "Preliminary Due Diligence Package" means with respect to any proposed Transaction Asset, the following due diligence information relating to such proposed Transaction Asset to be provided by Seller to Buyer pursuant to this 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 Transaction Asset); (v) indicative debt service coverage ratios; (vi) indicative Loan-to-Value Ratio; (vii) Seller'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; (c) seismic reports; and (d) operations and maintenance plan with respect to asbestos-containing materials; (xi) in the case of a B Note, Mezzanine Loan or Preferred Equity Interest, all information which would otherwise be provided for the underlying Loan Asset, and in addition, all documentation evidencing or otherwise relating to the B Note, Mezzanine Loan or Preferred Equity Interest, including, without limitation, intercreditor agreements, participation agreements, and shareholder agreements, as applicable; -10- (xii) in the case of CMBS, (a) a copy of the applicable pooling and servicing agreement, trust agreement, participation agreement or similar document governing the issuance and administration of the CMBS; (b) a copy of any new issue asset summary books; (c) copy of the applicable prospectus or offering memorandum; (d) to the extent that the CMBS is certificated, an original of the relevant certificate duly endorsed in blank to Buyer; (e) to the extent that the CMBS is not certificated, all documents requested by Buyer to confirm that the CMBS is being held in a security account under the control of Buyer, or such other evidence of confirmation of the sale to Buyer as Buyer shall require; (f) a copy of the documents specified above relating to, directly or indirectly, the subject Transaction Asset, to the extent obtained by the originating lender and available to Seller; and (g) a copy of any other agreement or instrument evidencing or otherwise governing the CMBS; (xiii) analyses and reports with respect to such other matters concerning the Transaction Asset as Buyer may in its sole discretion require; (xiv) documents comprising such Transaction Asset, or current drafts thereof, including, without limitation, underlying debt and security documents, intercreditor agreements, participation agreements, shareholder agreements, guaranties, underlying borrower's organizational documents, warrant agreements, and loan and collateral pledge agreements, as applicable; and (xv) a list that specifically and expressly identifies any Transaction Asset Documents that relate to such Transaction Asset but are not in Seller's possession. "Price Differential" shall mean, with respect to any Transaction hereunder as of any date, the aggregate amount obtained by daily application of the applicable Pricing Rate in effect from time to time for such Transaction to the Purchase Price for such Transaction on each day during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the Repurchase Date (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction, including any amounts paid in respect of such Price Differential pursuant to Section 3.04 or any other partial repayments). "Pricing Rate" shall have the meaning provided in Section 4.01(b) hereof. "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. "Purchase Date" shall mean, with respect to an Eligible Transaction Asset, the date on which such Eligible Transaction Asset is transferred by Seller to Buyer, or its designee. "Purchase Documents" means this Agreement, the related Confirmation and all other agreements, instruments, certificates and documents delivered by or on behalf of Seller to evidence the Transaction(s) or otherwise in satisfaction of the requirements of this Agreement, or the other documents listed above as same may be amended or modified from time to time. "Purchase Period" shall mean the period commencing on the date hereof and expiring on, and excluding, July 29, 2007, as the same may be extended pursuant to Section 4.01(a) hereof. -11- "Purchase Price" means the price at which Transaction Assets are transferred by Seller to Buyer, or its designee, as specified in the related Confirmation. "Purchase Rate" means, for any Eligible Transaction Asset, 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. "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. "Repurchase Date" shall mean, with respect to a Transaction, the date on which Seller is to repurchase the related Transaction Assets from Buyer, which date, unless otherwise specified in the related Confirmation, shall be the Termination Date. "Repurchase Obligations" shall have the meaning provided in Section 5.01(a) hereof. "Repurchase Period" shall mean, if the Termination Date shall not be extended in accordance with the terms hereof, the period from and after July 29, 2007 through and including July 29, 2008; provided, however, that if the Purchase Period is extended in accordance with the terms hereof, "Repurchase Period" shall mean the period commencing on the day immediately following the day on of the expiration of the Purchase Period and expiring on the first anniversary of the date of its commencement. "Repurchase Price" shall mean the price at which a Transaction Asset is to be transferred from Buyer, or its designee, to Seller upon termination of the related Transaction, which will be determined in each case (including Transactions terminable upon demand) as the sum of (i) the Purchase Price and (ii) the Price Differential, in each case as of the date of such determination, decreased by all cash, Income and Periodic Advance Repurchase Payments (including Late Fees, if any) actually received by Buyer. "Responsible Officer" shall mean, as to any Person, the chief executive officer, chairman, the chief operating officer and the chief financial officer of such Person. "Seller" shall have the meanings provided in the heading hereof. "Servicer" shall have the meaning provided in Section 12.14(c) hereof. "Servicing Agreement" shall have the meaning provided in Section 12.14(c) hereof. "Servicing Records" shall have the meaning provided in Section 12.14(b) hereof. "Subordinate Mortgage Loan" shall mean a performing mortgage loan secured by a second lien position and encumbering one or more commercial or multi-family residential properties which Custodian has been instructed to hold for Buyer pursuant to the Custodial Agreement, and which Subordinate 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 Seller in and to the Mortgaged Property covered by such Mortgage. "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 -12- 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, solely for purposes of Section 9 hereof, a Subsidiary of Seller shall only include a direct wholly-owned Subsidiary of Seller. "Supplemental Due Diligence List" means, with respect to any proposed Transaction Asset, information or deliveries concerning such proposed Transaction Asset, such items 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 final LTV ratio computation and a final debt service coverage ratio computation for such proposed Transaction Asset. "Tangible Net Worth" shall mean, as of a particular date, (a) all amounts which would be included under capital of Seller and its consolidated Subsidiaries on a balance sheet of Seller and its consolidated Subsidiaries at such date, determined in accordance with GAAP, less (b) intangible assets of Seller and its consolidated Subsidiaries. "Termination Date" shall mean July 29, 2008 or such earlier date on which this 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 29, 2008, the Termination Date may be extended pursuant to Section 4.01(a) of this Agreement. "Title Insurance Policy" shall mean, with respect to any real property underlying a Loan Asset, a mortgagee's title insurance policy or policies issued to Buyer and Buyer's successors and assigns (or, subject to the written approval of Buyer, an endorsement to Seller's title insurance policy insuring the assignment to Buyer of the applicable mortgage) by one or more title companies reasonably satisfactory to Buyer, which policy or policies shall be in form and substance reasonably acceptable to Buyer, with such endorsements as Buyer shall reasonably require and, with respect to any Loan Asset, a mortgagee's title insurance policy or policies issued to Buyer and Buyer's successors and/or assigns by one or more title companies reasonably satisfactory to Buyer reflecting Buyer's interest in such Loan Asset. "Total Indebtedness" shall mean, for any period, the aggregate Indebtedness of Seller and its consolidated Subsidiaries during such period less the amount of any nonspecific balance sheet reserves maintained in accordance with GAAP. "Transaction" shall have the meaning provided in Section 1 hereof. "Transaction Asset" shall mean any Eligible Transaction Asset which has been sold by Seller to Buyer in a Transaction hereunder, but which has not been repurchased by Seller. The term "Transaction Asset" shall include any additional asset delivered pursuant to Section 3.04 hereof. "Transaction Asset Documents" shall mean with respect to any Transaction Asset, the documents comprising the Asset File for such Transaction Asset. -13- "Transaction Asset Items" shall have the meaning provided in Section 5.01(b) hereof. "Transaction Asset Note" shall mean the original executed Mortgage Note in respect of a Subordinate Mortgage Loan or Whole Loan or such other promissory note or other evidence of the indebtedness of a Transaction Asset Obligor with respect to a Mezzanine Loan or B Note. "Transaction Asset Obligor" shall mean any obligor under any Eligible Transaction Asset or Transaction Asset, as applicable, any issuer of any security comprising any portion of the Transaction Asset and any entity in which an Equity Interest comprises any portion of such Eligible Transaction Asset or Transaction Asset. "Transaction Asset Schedule" shall mean a list of Eligible Transaction Assets to be sold in a Transaction hereunder, attached to a Custodial Identification Certificate setting forth, as to each Eligible Transaction Asset, the applicable information for such Transaction Asset Type specified on Annex 1 to the Custodial Agreement. "Transaction Asset Schedule and Exception Report" shall mean the Transaction Asset schedule and exception report prepared by Custodian pursuant to the Custodial Agreement. "Transaction Asset Type" shall mean a Subordinate Mortgage Loan, Whole Loan, Mezzanine Loan, B Note, Preferred Equity Interest, CMBS, participation interest in any of the foregoing and Other Approved Asset. "Transaction Costs" shall mean, with respect to any Transaction, all actual out-of-pocket reasonable costs and expenses paid or incurred by Buyer and payable by Seller relating to the making of such Transaction (including legal fees and other fees described in Section 12.03 hereof). Transaction Costs shall not include costs incurred by Buyer for overhead and general administrative expenses. "Transaction Documents" shall mean, collectively, this Agreement, the related Confirmations, the Servicing Agreement and the Custodial Agreement. "Trust Receipt" shall mean the receipt delivered by Custodian pursuant to the provisions of Section 4 of the Custodial Agreement acknowledging receipt of a Asset File in connection with a Transaction hereunder in the form of Annex 2 to the Custodial Agreement. "Underlying Property" means any Property owned by a direct or indirect issuer of (a) Equity Interests that have been pledged to Seller as collateral for a Mezzanine Loan or (b) a Preferred Equity Interest. "Underwriting Issues" means with respect to any Transaction Asset as to which Seller intends to request a Transaction, all information that has come to Seller'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 Transaction Asset Document(s)), to a reasonable institutional lender in determining whether to originate or acquire the Transaction Asset 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 ownership interest or security interest in any Transaction Asset is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform 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. -14- "Whole Loan" shall mean a mortgage loan secured by a first mortgage lien on the Mortgaged Property encumbered thereby and satisfying in all respects (other than lien priority) the definition of a Subordinate Mortgage Loan as defined herein. 2.02. 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 Buyer hereunder shall be prepared, in accordance with GAAP. Section 3. Transactions, Note and Prepayments. 3.01. Transactions. (a) Buyer agrees to enter from time to time upon Seller's request, on a committed basis and on the terms and conditions of this Agreement, into Transactions with Seller, to be funded in Dollars, during the Purchase Period (but not during the Repurchase Period), in an aggregate Purchase Price at any one time outstanding up to but not exceeding the Maximum Purchase Amount as in effect from time to time. Nothing in this Agreement shall be interpreted as a commitment by Buyer to enter into any Transaction, but rather sets forth the procedures to be used in connection with periodic requests for Transactions and the conditions to the entering into any Transactions. Seller hereby acknowledges that Buyer is under no obligation to agree to enter into, or to enter into, any Transaction pursuant to this Agreement. (b) Subject to the terms and conditions of this Agreement, during the term of this Agreement, Seller may sell (in whole or in part), repurchase (in whole or in part) and resell (in whole or in part) Transaction Assets hereunder. 3.02. Confirmations (a) At the time specified in Section 3.03(d), Seller shall execute and deliver to Buyer a confirmation of the related Transaction, substantially in the form attached as Exhibit A hereto (a "Confirmation"). The Confirmation shall specify any additional terms or conditions of the Transaction agreed to by Buyer and not inconsistent with this Agreement. Each 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, and Buyer's payment of the Purchase Price and Seller's acceptance of the Purchase Price shall constitute the parties' agreement to the terms of such Confirmation. It is the intention of the parties that each Confirmation shall not be separate from this Agreement but shall be made a part of this Agreement. In the event that any terms or conditions of any Confirmation are inconsistent, or in direct conflict, with this Agreement, the terms of this Agreement shall prevail; provided that the Confirmation and this Agreement shall be construed to be cumulative to the extent possible. (b) The date, Repurchase Price and Purchase Rate of each Transaction entered into by Buyer and Seller, and each payment made on account of the Repurchase Price thereof, shall be recorded by Buyer from time to time on its internal books and records (whether electronic or otherwise). Failure of Buyer to make such notation shall not affect the obligations of Seller to make a payment when due of any amount owing hereunder in respect of the Transactions. Seller agrees that Buyer's books and records showing the MS Indebtedness pursuant to this Agreement and the other Transaction 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 Confirmation or other instrument. Buyer will provide to Seller a monthly statement of Transactions, payments, and other transactions pursuant to this Agreement. Failure by Buyer to provide such monthly statement shall not -15- affect the obligations of Seller to make a payment when due of any amount owing hereunder in respect of the Transactions. Such statement shall be deemed correct, accurate, and binding on Seller absent manifest error. 3.03. Procedures for Transactions. (a) Preliminary Approval of Proposed Transaction Asset. (i) Seller may, from time to time, submit to Buyer a Preliminary Due Diligence Package for Buyer's review and approval in order to request a Transaction hereunder with respect to any proposed Transaction Asset that Seller proposes to sell to Buyer and to be included in the Aggregate Margin Maintenance Asset Value in connection with such Transaction. (ii) Upon Buyer's receipt of a complete Preliminary Due Diligence Package, Buyer within two (2) Business Days shall have the right to request, in Buyer's sole and absolute discretion, additional diligence materials and deliveries that Buyer shall specify on a Supplemental Due Diligence List. Upon Buyer's receipt of all of the Diligence Materials or Buyer's waiver thereof, Buyer, within five (5) Business Days, shall either (A) notify Seller of the Maximum Purchase Rate (which may be less than the Purchase Rate set forth in the definition of Eurodollar Rate Spread) and the Asset Value for the proposed Transaction Asset or (B) 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 following receipt of all Diligence Materials or Buyer's written waiver thereof shall be deemed to be a denial of Seller's request for a Transaction, unless Buyer and Seller have agreed otherwise in writing. Nothing in this Section 3.03(a)(ii) or elsewhere in this Agreement shall, or be deemed to, prohibit Buyer 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 Seller under this Agreement. (b) Final Approval of Proposed Transaction Asset. Upon Buyer's notification to Seller of the Maximum Purchase Rate and the Asset Value for any proposed Transaction Asset, Seller shall, if Seller desires to obtain one or more Purchase Price payments with respect to such proposed Transaction Asset, satisfy the conditions (unless waived in writing by Buyer) set forth below (in addition to satisfying the conditions precedent to obtaining each Purchase Price payment, as set forth in Section 6 of this Agreement) as conditions precedent to Buyer's approval of such proposed Transaction Asset as an Eligible Transaction Asset, all in a manner, and pursuant to documentation, satisfactory in all respects to Buyer and its counsel: (i) Environmental and Engineering. If applicable, Buyer shall have received an Environmental Report and an Engineering Report, each in form and substance satisfactory to Buyer, 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 Buyer in its reasonable discretion. (ii) Appraisal. If applicable, Buyer shall have received an Appraisal. (iii) Insurance. With respect to a Whole Loan, Subordinate Mortgage Loan or B Note encumbering real property, Buyer shall have received (to the extent available to Seller) 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 Transaction Asset Documents or the Purchase -16- Documents. Such certificates or other evidence shall indicate that Seller will be named as an additional insured as its interest may appear (or shall run to the original lender's successors and assigns) 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 Transaction Asset Documents. (iv) Survey. With respect to a Loan Asset, a B Note, or a Preferred Equity Interest, to the extent obtained by Seller from the Transaction Asset Obligor with respect to any Transaction Asset at the origination of the underlying loan or equity interest, as the case may be, relating thereto, Buyer shall have received with respect to proposed Transaction Asset that is real property, a current survey of such real property in a form satisfactory to Buyer. (v) 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 title reports and updates, as applicable, conducted by search firms and/or title companies acceptable to Buyer with respect to the Transaction Asset, Seller and the related underlying obligor, such searches to be conducted in each location Buyer shall reasonably designate. (vi) Title Insurance Policy. (A) With respect to a Whole Loan or Subordinate Mortgage Loan, Seller shall have delivered to Buyer (1) an unconditional commitment to issue title insurance policies in favor of Buyer and Buyer'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 Asset-Specific Transaction Balance (taking into account the proposed Purchase Price) or such other amount as Buyer 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 Buyer and Buyer'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 Transaction Balance (taking into account the proposed Purchase Price) or such other amount of title coverage as Buyer shall require in its sole discretion. (B) With respect to a Mezzanine Loan, a B Note, a Preferred Equity Interest, CMBS or Other Approved Asset, 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 such Transaction Asset, including, without limitation, a copy of a title insurance policy dated a date, and by a title insurer, in each case acceptable to Buyer in its sole discretion, showing that title is vested in the related Transaction Asset Obligor or in an entity in whom such Transaction Asset Obligor holds a beneficial interest. (vii) Purchase Documents. Seller shall have executed and delivered to Buyer, in form and substance satisfactory to Buyer and its counsel, all Purchase Documents conveying a valid ownership interest in the proposed Eligible Transaction Asset(s) to Buyer and perfecting a precautionary first priority security interest of Buyer in the proposed Eligible Transaction Asset(s) (and, in each case, in any Interest Rate Protection Agreements held by Seller with respect thereto) which shall be subject to no Liens except as expressly permitted by Buyer. Each of the Purchase Documents shall contain such representations and warranties concerning the proposed Transaction Asset and such other terms as shall be reasonably satisfactory to Buyer. -17- (viii) Opinions of Counsel. Buyer shall have received from counsel to Seller its legal opinion as to enforceability of this Agreement and all documents executed and delivered hereunder in connection with such Transaction, (at Buyer's option) an opinion from local counsel where the applicable property is located and an opinion to, or for the benefit of, Seller 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 Buyer 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, or run to the benefit of, Buyer and its successors and assigns, and in a form and substance reasonably satisfactory to Buyer. (ix) Additional Real Estate Matters. To the extent obtained by Seller from the Transaction Asset Obligor relating to any Transaction Asset at the origination of the underlying loan or equity interest relating thereto, Seller shall have delivered to Buyer such other real estate related certificates and documentation as may have been requested by Buyer, 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 Transaction Asset. (x) B Notes, Mezzanine Loans and Preferred Equity Interests. In the case of a B Note, Mezzanine Loan or Preferred Equity Interest, Buyer shall have received all documentation specified herein as if the underlying mortgage loan were the direct Transaction Asset and, in addition, all documentation evidencing or otherwise relating to the B Note, the Mezzanine Loan or the Preferred Equity Interest, as applicable. (xi) CMBS. In the case of CMBS, Buyer shall have received (a) a copy of the applicable pooling and servicing agreement, trust agreement, participation agreement or similar document governing the issuance and administration of the CMBS; (b) a copy of any new issue asset summary books; (c) a copy of the applicable prospectus or offering memorandum; (d) to the extent that the CMBS is certificated, an original of the relevant certificate duly endorsed in blank to Buyer; (e) to the extent that the CMBS is not certificated, all documents requested by Buyer to confirm that the CMBS is being held in a security account under the control of Buyer, or such other evidence of confirmation of the sale to Buyer as Buyer shall require; (f) a copy of the documents specified above relating to, directly or indirectly, the subject Transaction Asset, to the extent obtained by the originating lender and available to Seller; and (g) a copy of any other agreement or instrument evidencing or otherwise governing the CMBS. (xii) Other Documents. Buyer shall have received such other documents as Buyer or its counsel shall request with respect to each or any Transaction Asset. (c) Transaction Asset Approval or Disapproval. Within two (2) Business Days following the date upon which Seller has tendered performance of the conditions enumerated in Sections 3.03(b)(i) through (xii), or has delivered such items or documents fully executed, if applicable, in final form, Buyer shall either (i) if the Transaction Asset Documents or the Purchase Documents with respect to the proposed Transaction Asset are not reasonably satisfactory in form and substance to Buyer, notify Seller that Buyer has not approved the proposed Transaction Asset as Transaction Asset or (ii) notify Seller and Bailee that Buyer has approved the proposed Transaction Asset as Transaction Asset and such notice shall identify the documents to be delivered to Custodian in connection with such proposed Transaction Asset pursuant to Section 3.03 and Section 6 of this Agreement and shall identify the party whom Buyer shall designate to record and/or file, as the case may be, any security documents necessary to convey a valid ownership interest to Buyer and to perfect Buyer's precautionary security -18- interest in the Eligible Transaction Assets. The terms of delivery and filing and/or recordation of such security documents shall be set forth in a separate agreement between Buyer and its designee. Buyer's failure to respond to Seller within two (2) Business Days shall be deemed to be a denial of Seller's request that Buyer approve the proposed Transaction Asset, unless Buyer and Seller have agreed otherwise in writing. (d) Procedure for Purchase of Eligible Transaction Assets. Once Buyer has approved the Transaction Asset in accordance with Section 3.03(c) above, Seller may request a Transaction hereunder, on any Business Day during the Purchase Period, by delivering to Buyer, with a copy to Custodian, a Confirmation, which Confirmation must be received by Buyer prior to 12:00 p.m., New York City time, one (1) Business Day prior to the requested Purchase Date. Such Confirmation shall attach an Officer's Certificate signed by a Responsible Officer of Seller as required by Section 6.02(b) hereof. Contemporaneously with the delivery of the Confirmation, Seller shall deliver to Buyer with a copy to Custodian, a Custodial Identification Certificate along with the accompanying Transaction Asset Schedule with respect to all proposed Eligible Transaction Assets to be sold to Buyer on the applicable Purchase Date. -19- (e) Delivery of Asset Files and Purchase Documents. "Non-Table Funded" Eligible Transaction Assets: By no later than 1:00 p.m., New York City time, one (1) Business Day prior to any Purchase Date, unless otherwise agreed by Buyer, Seller and/or the Bailee shall deliver to the Custodian as to any Eligible Transaction Asset on a case-by-case basis and to the extent applicable (i) original counterparts of (A) the Transaction Asset Note evidencing such Eligible Transaction Asset, including any power of attorney related to the execution thereof, together with any and all intervening endorsements thereon, endorsed, in blank, on its face or by allonge attached thereto (without recourse, representation or warranty, express or implied) (provided, an original note shall not be required for a Preferred Equity Interest or a B Note evidenced by a participation certificate or a non-certificated participation interest rather than a Transaction Asset Note), (B) any participation certificate or share certificate relating to the Eligible Transaction Asset together with any and all intervening endorsements thereon, endorsed, in blank, on its face or by endorsement or stock power attached thereto (without recourse, representation or warranty, express or implied), (C) any participation agreement relating to uncertificated Eligible Transaction Asset that is not evidenced by a Transaction Asset Note (other than a Preferred Equity Interest), (D) an original executed assignment, in blank, in recordable form (except for the name of the assignee and any missing recording information), and otherwise in form and substance reasonably satisfactory to Buyer, of (x) the Mortgage, (y) any related assignment of leases and rents (if such item is a document separate from the Mortgage) and (z) any other recorded document relating to the Eligible Transaction Asset otherwise included in the Asset File, and (E) an original assignment of all unrecorded documents relating to the Eligible Transaction Asset (to the extent not already assigned pursuant to clause (D) above), in blank, and original counterparts or copies of all the Transaction Asset Documents comprising the Asset File, (ii) the security documents described in Section 3.03(b)(vii) above, and (iii) to the extent applicable, any other documents, reports or updated information as Buyer shall request pursuant to Section 3.03(b)(i)-(xii) and Section 6.03(b) not heretofore finally approved by Buyer. "Table Funded" Eligible Transaction Assets: 1) By no later than 1:00 p.m., New York City time, on the Purchase Date, Seller shall cause the Bailee to deliver to the Custodian and Buyer by facsimile or e-mail (i) as to each Eligible Transaction Asset, the original note, if applicable, evidencing the making of a loan secured by such Transaction Asset (provided, an original note shall not be required for a Preferred Equity Interest or a B Note evidenced by a participation certificate or a non-certificated participation interest rather than a Transaction Asset Note), and a fully executed Bailee Agreement and Bailee's Trust Receipt and Certification issued by the Bailee thereunder, and (ii) evidence satisfactory to Buyer that all documents necessary to perfect Seller's interest in the Eligible Transaction Assets have been delivered to a party acceptable to Buyer for recordation and filing. 2) By no later than 1:00 p.m., New York City time, on the third (3rd) Business Day following the applicable Purchase Date, Seller shall cause the Bailee to deliver to the Custodian the Asset File. -20- (f) Custodial Identification Certificates and Trust Receipts. By no later than 12:00 p.m., New York City time, two (2) Business Days prior to any Purchase Date with respect to "Non-Table Funded" Eligible Transaction Assets and by no later than 12:00 p.m., New York City time, on each Purchase Date with respect to "Table Funded" Eligible Transaction Assets, Seller shall provide Buyer and Custodian with a final Custodial Identification Certificate and related Transaction Asset Schedule with respect to the Transaction Asset to be sold to Buyer on such Purchase Date, indicating any changes, if any, from the Custodial Identification Certificate and related Transaction Asset Schedule heretofore delivered to Buyer and Custodian pursuant to Section 3.03(d) above. With respect to "Table Funded" Eligible Transaction Assets, by 12:00 p.m. New York City time on each Purchase Date, Custodian shall provide to Buyer a proposed Transaction Asset Schedule for the applicable Eligible Transaction Assets. With respect to "Non-Table Funded" Eligible Transaction Assets, by no later than 1:00 p.m., New York City time, on the Purchase Date, Custodian shall deliver to Seller and Buyer a Trust Receipt with a Transaction Asset Schedule in respect of all of the Transaction Asset sold to Buyer on such Purchase Date. With respect to "Table Funded" Eligible Transaction Assets, by no later than 1:00 p.m. New York City time on the third (3rd) Business Day following the applicable Purchase Date, the Custodian shall deliver to Buyer a Trust Receipt with a Transaction Asset Schedule in respect of all of the Transaction Assets sold to Buyer on the applicable Purchase Date. (g) If Seller shall deliver a Confirmation pursuant to Section 3.03(d) hereof and all conditions precedent set forth in Sections 3.03(a), 3.03(b), 3.03(c), 6.01 and 6.02 have been met, and provided no Default or Event of Default shall have occurred and be continuing, Buyer shall enter into a Transaction with Seller on the requested Purchase Date, with a Purchase Price in the amount so requested and approved by Buyer. (h) Subject to the timely receipt by Buyer of a Trust Receipt with a Transaction Asset Schedule as provided above, and subject further to the provisions of Section 6 hereof, such Purchase Price payment will then be made available to Seller by Buyer transferring, via wire transfer, to the following account of Seller: JPMorgan Chase Bank, 380 Madison Ave, 11th Floor, New York, NY 10017-2591, ABA #: 021-000021, Account #: 230254632, Account Name: Capital Trust, Inc., Attention: Geoffrey G. Jervis ((212)-655-0247), the aggregate Purchase Price amount of such Transaction in funds immediately available to Seller. Buyer may consider on a case-by-case basis in its sole, absolute discretion alternative funding arrangements requested by Seller. (i) From time to time, Seller shall forward to Custodian additional original documents or additional documents evidencing any (i) assumption, modification, consolidation or extension of a Loan Asset, or (ii) any amendment to the operative documents with respect to an Equity Interest, in each case approved by Buyer in accordance with the terms of this Agreement, and upon receipt of any such other documents, the Custodian shall hold such other documents as Buyer 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 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 Custodian promptly when they are received. 3.04. Margin Maintenance. (a) Buyer may determine and re-determine the Aggregate Margin Maintenance Asset Value on any Business Day and on as many Business Days as it may elect. If at any time (i) the aggregate Purchase Price with respect to all Transaction Assets exceeds the Aggregate Margin -21- Maintenance Asset Value (an "Aggregate Margin Maintenance Asset Value Deficiency"), as determined by Buyer in its sole discretion and notified to Seller on any Business Day, or (ii) Seller shall have received a prepayment of the principal of any loan or preferred equity interest comprising a portion of the Transaction Assets (including, without limitation, the payment of casualty or condemnation proceeds), Seller 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 repurchase Transaction Assets at the Repurchase Price, make a prepayment in reduction of the Repurchase Price, or sell additional Transaction Asset(s) (which Transaction Asset(s) shall be in all respects acceptable to Buyer) to Buyer for no additional consideration, such that after giving effect to such repurchase, prepayment or sale, the aggregate Purchase Price with respect to all Transaction Assets does not exceed the Aggregate Margin Maintenance Asset Value as re-determined by Buyer after such repurchase, prepayment or sale. So long as no Default or Event of Default has occurred and is then continuing, all prepayments in reduction of the Repurchase Price shall be applied against the Asset-Specific Transaction Balance relating to the Transaction being repaid. (b) If at any time under any Transaction Asset Document evidencing Eligible Transaction Assets (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 Transaction Asset Obligor becomes false or misleading in any material respect or (z) the relevant Transaction Asset Obligor fails to perform or observe any material covenant or other obligation, Buyer may, in its sole discretion and without regard to any determination of the Asset Value of such Eligible Transaction Assets, notify Seller of such occurrence and may require by giving notice to Seller that the relevant Eligible Transaction Asset be repurchased at the Repurchase Price or a prepayment in reduction of the Purchase Price be made, as determined by Buyer in its sole discretion. Not later than one (1) Business Day after the receipt of such notice, Seller shall prepay the Asset-Specific Transaction Balance related to such Eligible Transaction Asset. Buyer 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 6.02(b) or (ii) any representation of Seller set forth in Section 7.12 was true to Seller's actual knowledge. Section 4. Payments; Computations; Etc. 4.01. Repurchase of Transaction Assets; Periodic Advance Repurchase Payments. (a) Seller hereby promises to pay in full on the Termination Date the aggregate Repurchase Price with respect to all Transaction Assets then held by Buyer; provided, however, in the event the Purchase Period shall be extended pursuant to the terms hereof, Seller promises to pay such aggregate Repurchase Price with respect to the Transaction Assets held by Buyer as of the expiration date of the Purchase Period in four (4) quarterly installments commencing on the first Business Day of the month immediately following the expiration of the Purchase Period and continuing on the first Business Day of each calendar quarter thereafter, with a final payment on the Termination Date, as extended (each, an "Installment Date") of an amount equal to the quotient of (x) the aggregate Repurchase Price of the Transaction Assets held by Buyer as of the expiration of the Purchase Period, divided by (y) four (4) (such schedule of payments, the "Repurchase Schedule"); provided, further, that in the event that Seller shall make a Repurchase Price payment in excess of the Repurchase Price amount then due and payable in accordance with the Repurchase Schedule, the Repurchase Schedule shall be recalculated such that Seller shall pay the Repurchase Price of the Transaction Assets held by Buyer as of the date of such repayment (after taking such payment into account) by payment on each Installment Date remaining in the Repurchase Period of an amount equal to the quotient of (x) the aggregate repurchase price with respect to the Transaction Assets held by Buyer as of the date of such repayment (after taking such repayment into account) divided by (y) the number of Installment Dates remaining during the Repurchase -22- Period. Any Repurchase Price payments made by Seller to Buyer subsequent to an Installment Date shall be credited at the time of such payment and be applied to the payment due and payable on the next succeeding Installment Date. Notwithstanding anything to the contrary contained herein, at any time following the date that is thirty (30) days prior to the first anniversary of the date of this Agreement, Seller may request in writing that Buyer consider extending the Purchase Period for further additional periods of one (1) year; provided that no Default or Event of Default shall have occurred and be continuing at the time of such request. Such request shall be subject to Buyer's approval in its sole discretion. Within ten (10) Business Days of Buyer's receipt of Seller's request, Buyer shall notify Seller whether such request has been approved. Buyer's failure to so notify Seller shall be deemed to constitute Buyer's denial of such request. (b) Notwithstanding that Buyer and Seller intend all Transactions hereunder to be sales of the related Transaction Assets to Buyer, Seller hereby promises to pay to Buyer an amount equal to the accreted value of the Price Differential of each Transaction (a "Periodic Advance Repurchase Payment") for the period from and including the date of such Transaction to but excluding the date on which the Repurchase Price with respect to such Transaction shall be paid in full, at a rate per annum (the "Pricing Rate") equal to the Eurodollar Rate plus the applicable Eurodollar Rate Spread. Notwithstanding the foregoing, Seller hereby promises to pay to Buyer, to the extent permitted by applicable law, a late fee (the "Late Fee") at the applicable Late Fee Rate with respect to any Repurchase Price Amount and to any other amount payable by Seller hereunder that shall not be paid in full when due 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 late fees pursuant to this subsection shall not constitute a waiver of any Default and shall not otherwise limit or prejudice any right of Buyer hereunder. (c) Any Periodic Advance Repurchase Payment with respect to a Transaction shall be made monthly in arrears on the first Business Day of each month and for the last month of this Agreement on the first Business Day of such last month and on the Termination Date. Any late fee payable at the Late Fee Rate shall accrue daily and shall be payable upon such accrual. (d) Any Transaction Asset may be repurchased and prepayments in reduction of the Repurchase Price for any Transaction Asset may be made at any time upon two (2) Business Days prior written notice, without any penalty or premium; provided, however, that any such payment or prepayment of the Repurchase Price shall be accompanied by an amount representing any accrued but unpaid Periodic Advance Repurchase Payments, any accrued but unpaid Late Fees and all other amounts then due under the Transaction Documents (including, without limitation, all amounts due under Section 4 hereof). Each prepayment in reduction of the Repurchase Price of a Transaction Asset that is voluntary (as opposed to mandatory under the terms of this Agreement) shall be in an amount of not less than One Hundred Thousand Dollars ($100,000.00). 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 Transaction Balance as designated by Seller to Buyer in writing. (e) With respect to any Transaction Asset, Seller shall repay to Buyer an amount equal to the product of (i) the amount of casualty or condemnation proceeds paid to, or for the benefit of, Seller or any underlying obligor in respect of such Transaction Asset to the extent that Seller is not required under the underlying loan documents with Seller's obligor to reserve, escrow, re-advance or apply such proceeds for the benefit of such obligor or the Underlying Property and (ii) the Purchase Rate applicable to such Transaction Asset. So long as no Default or Event of Default has occurred and is then continuing, such amounts paid to Buyer shall be applied in reduction of the Asset-Specific Transaction Balance relating to such Transaction Asset. -23- 4.02. Payments. (a) Except to the extent otherwise provided herein, all Repurchase Price payments, Periodic Advance Repurchase Payments, Late Fees and other amounts to be paid by Seller under this Agreement shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at the following account maintained by Buyer: Account No. 30463591, for the account of Morgan Stanley Bank, 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). Seller acknowledges that it has no rights of withdrawal from the foregoing account. Buyer shall endeavor to send Seller 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 Buyer to send, or of Seller to receive, such bill shall in no way affect Seller's obligation to pay amounts due under this Agreement. (b) Except to the extent otherwise expressly provided herein, if the due date of any payment under this Agreement 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. 4.03. Computations. The amount of Periodic Advance Repurchase Payments and Late Fees 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. Buyer shall determine any Pricing Rate or Late Fee Rate payable with respect to Transactions hereunder, and such determination shall be conclusive and binding, absent manifest error. 4.04. [Intentionally Omitted.]. 4.05. Booking of Transactions. Without limitation of Buyer's rights to sell, assign or transfer a Transaction or any interest therein, including any participation interest therein, at any time and from time to time, Buyer may make, carry or transfer such Transaction at, to, or for the account of any of its branch offices or the office of an Affiliate of Buyer. 4.06. Buyer's Funding of Eurodollar Rate Transactions. Seller hereby expressly acknowledges and agrees that Buyer may fund a Transaction 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 Eurodollar Rate in an amount equal to the Purchase Price of such Transaction and having a maturity comparable to the relevant payment period or (ii) through Buyer's entering into or purchase of repurchase agreements, interest rate agreements, swap agreements or other arrangements in such amounts as Buyer shall determine (and which amounts may or may not, in Buyer's sole discretion, be "match funded" to such Transaction). Calculation of all amounts payable to Buyer under this Section 4.06 shall be made as though Buyer had actually funded such Transaction 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 Transaction and having a maturity comparable to the relevant payment period and through the transfer of such Eurodollar deposit from an off-shore office of Buyer to a domestic office of Buyer in the United States of America; provided, however, that Buyer may fund such Transaction in any manner it sees fit and the foregoing assumptions shall be utilized only for purposes of calculating amounts payable under this Section 4.06. 4.07. Income Payments. -24- (a) Subject to Section 5.06 hereof, Seller shall be entitled to receive an amount equal to all Income paid or distributed on or in respect of the Transaction Assets that is not otherwise received by Seller, to the full extent it would be so entitled if the Transaction Assets had not been sold to Buyer; provided that in no event shall Buyer be entitled to receive any proceeds received from any Transaction Asset Obligor in connection with the refinancing and/or final distribution to Seller with respect to any Eligible Transaction Assets to the extent same exceeds the sums provided to be paid to Buyer under Section 8.15 of this Agreement. (b) Provided no Event of Default has occurred and is continuing, and subject to the terms of the Transaction Documents, Seller shall retain the right to take all actions under the Transaction Documents and to retain all contact with each Transaction Asset Obligor, to the full extent it would be had the Transaction Assets not been sold to Buyer. 4.08. Compensation for Increased Costs. If Buyer 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 advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Buyer; or (b) imposes any other condition on or affecting Buyer or its obligations hereunder or the interbank Eurodollar market; and the result of any of the foregoing is to increase the cost to Buyer of agreeing to enter into or remain a party to, the Transactions hereunder or to reduce any amount received or receivable by Buyer with respect thereto; then, in any such case, Seller shall promptly (but in any event no later than five (5) Business Days following any notice from Buyer of the same) pay to Buyer, upon receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate Buyer for any such increased cost or reduction in amounts received or receivable hereunder. Buyer shall deliver to Seller a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Buyer under this Section 4.08, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 4.09. Limitation on Types of Transactions; Illegality. Anything herein to the contrary notwithstanding, if: (a) Buyer 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 2.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the amounts of Periodic Advance Repurchase Amounts or of Late Fees for Transactions as provided herein; or (b) Buyer determines, which determination shall be conclusive, that the relevant rate of interest referred to in the definition of "Eurodollar Base Rate" in Section 2.01 hereof upon the basis of which the Pricing Rate for Transactions is to be determined is not likely adequate to cover the cost to Buyer of making or maintaining Transactions; or -25- (c) Buyer determines, which determination shall be conclusive, that it is or will be unlawful for Buyer to honor its obligation to make or maintain Transactions hereunder using a Eurodollar Rate as a result of compliance by Buyer 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 Buyer shall give Seller prompt notice thereof and, so long as such condition remains in effect, Buyer shall be under no obligation to enter into additional Transactions, and Seller shall either repurchase all such Transaction Assets as may be held by Buyer or pay Periodic Advance Repurchase Payments on such Transactions at a Pricing Rate per annum equal to the Eurodollar Substitute Rate. Section 5. Precautionary Collateral Security. 5.01. Transaction Assets; Precautionary Security Interest. (a) The parties intend that the Transactions hereunder be sales and purchases and not loans; provided that in order to preserve the rights of Buyer under this Agreement in the event that any court or other forum re-characterizes any Transaction hereunder as a loan, Seller shall be deemed to have assigned, pledged and granted a security interest in all of its right, title and interest in, to and under the Transaction Assets and the related Transaction Asset Items described in Section 5.01(b) below to Buyer, as security for the prompt repayment and performance by Seller of its obligations under the Transaction Documents and the Transactions entered into under this Agreement, including, without limitation, Seller's obligation to repurchase Transaction Assets at the Repurchase Price, or if such obligation were to be re-characterized as a loan, to repay such loan, and to pay any and all other amounts owing hereunder and any and all MS Indebtedness from time to time outstanding (collectively, the "Repurchase Obligations"). Seller agrees to mark its computer records to evidence the interests granted to Buyer hereunder. (b) All of Seller's right, title and interest in, to and under each of the following items of property transferred pursuant to the terms of this Agreement by Seller to Buyer from time to time and whether now owned or hereafter acquired, now existing or hereafter created and wherever located, is hereinafter collectively referred to as a "Transaction Asset Items": (i) all Subordinate Mortgage Loans, Mezzanine Loans, B Notes, Whole Loans, Preferred Equity Interests, CMBS, participation interests in any of the foregoing and Other Approved Assets; (ii) all Transaction Asset Documents, including without limitation all promissory notes, all securities, any collateral pledged or otherwise relating to such Transaction Asset, all representations and warranties made to, or for the benefit of, Seller by any Transaction Asset Obligor, all Servicing Records (as defined in Section 12.14(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 Buyer; (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 Transaction Asset and all claims and payments thereunder; (iv) all other insurance policies and insurance proceeds relating to any Transaction Asset or the related Underlying Property; -26- (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 5.01(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 Transaction Asset Documents as exclusive bailee and agent for Buyer pursuant to terms of the Custodial Agreement and shall deliver to Buyer Trust Receipts each to the effect that it has reviewed such Transaction Asset Documents in the manner and to the extent required by the Custodial Agreement and identifying any deficiencies in such Transaction Asset Documents as so reviewed. 5.02. Further Assurances. (a) Seller shall undertake, with respect to each Transaction Asset sold to Buyer and deemed to be pledged hereunder as security for a Transaction pursuant to Section 5.01(a), any and all actions deemed necessary by Buyer for the transfer by Seller to Buyer of a valid ownership interest and the granting of a precautionary first priority security interest, as the case may be, in such Transaction Asset. Without limiting the generality of the foregoing, Seller shall take such steps as are necessary for the transfer of a valid ownership interest and the granting and perfection of a precautionary first priority security interest in securities and related Transaction Assets. (b) At any time and from time to time, upon the written request of Buyer, and at the sole expense of Seller, Seller 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 Buyer may reasonably request for the purpose of obtaining or preserving the full benefits of this 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 or an assignment of any of the Transaction Asset Documents. Seller also hereby authorizes Buyer to file any such financing or continuation statement without the signature of Seller to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. 5.03. Changes in Locations, Name, etc. Seller shall not (i) change the location of its chief executive office/chief place of business from that specified in Section 7 hereof or (ii) change its name, identity or organizational structure (or the equivalent) or change the location where it maintains its records with respect to the Transaction Assets unless it shall have given Buyer at least ten (10) days prior written notice thereof and shall have delivered to Buyer all Uniform Commercial Code financing statements and amendments thereto as Buyer shall request and taken all other actions deemed necessary by Buyer to continue its perfected status in the Transaction Assets with the same or better priority. -27- 5.04. Buyer's Appointment as Attorney-in-Fact. (a) Seller hereby irrevocably constitutes and appoints Buyer and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Seller and in the name of Seller or in its own name, from time to time in Buyer's discretion, for the purpose of carrying out the terms of this 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 Agreement, and, without limiting the generality of the foregoing, Seller hereby gives Buyer the power and right, on behalf of Seller, without assent by, but with notice to, Seller, if an Event of Default shall have occurred and be continuing, to do the following: (i) in the name of Seller 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 Transaction Asset 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 Buyer for the purpose of collecting any and all such moneys due under any such mortgage insurance or with respect to any other Transaction Asset whenever payable; (ii) to pay or discharge taxes and Liens levied or placed on or threatened against the Transaction Asset; and (iii) (A) to direct any party liable for any payment under any Transaction Asset to make payment of any and all moneys due or to become due thereunder directly to Buyer or as Buyer 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 Transaction Asset; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Transaction Asset; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Transaction Asset or any part thereof and to enforce any other right in respect of any Transaction Asset; (E) to defend any suit, action or proceeding brought against Seller with respect to any Transaction Asset; (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 Buyer may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Transaction Assets as fully and completely as though Buyer were the absolute owner thereof for all purposes, and to do, at Buyer's option and Seller's expense, at any time, and from time to time, all acts and things which Buyer deems reasonably necessary to protect, preserve or realize upon the Transaction Asset and Buyer's Liens thereon and to effect the intent of this Agreement, all as fully and effectively as Seller might do. Seller hereby ratifies 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 Repurchase Obligations hereunder. (b) Seller also authorizes Buyer, at any time and from time to time, to execute, in connection with any sale provided for in Section 5.07 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Transaction Assets. (c) The powers conferred on Buyer pursuant to this Section 5.04 are solely to protect Buyer's interests in the Transaction Asset and shall not impose any duty upon Buyer to exercise any such -28- powers. Buyer shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither Buyer nor any of its officers, directors, or employees shall be responsible to Seller for any act or failure to act hereunder, except for its own gross negligence or willful misconduct. 5.05. Performance by Buyer of Seller's Obligations. If Seller fails to perform or comply with any of its agreements contained in the Transaction Documents and Buyer may itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Buyer incurred in connection with such performance or compliance, together with Late Fees thereon at a rate per annum equal to the Late Fee Rate, shall be payable by Seller to Buyer on demand and shall constitute Repurchase Obligations. 5.06. Proceeds. If an Event of Default shall occur and be continuing, (a) all proceeds of any Transaction Asset received by Seller consisting of cash, checks and other near-cash items shall be held by Seller in trust for Buyer, segregated from other funds of Seller, and, within two (2) Business Days of receipt by Seller, shall be turned over to Buyer in the exact form received by Seller (duly endorsed by Seller to Buyer, if required, in order to be negotiated by Buyer) and (b) any and all such proceeds received by Buyer (whether from Seller or otherwise) may, in the sole discretion of Buyer, be held by Buyer as collateral security for, and/or then or at any time thereafter may be applied by Buyer against, the Repurchase Obligations (whether matured or unmatured), such application to be in such order as Buyer shall elect. Any balance of such proceeds remaining after the Repurchase Obligations shall have been paid in full and this Agreement shall have been terminated shall be paid over to Seller 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 Transaction Asset. 5.07. Remedies. If an Event of Default shall occur and be continuing, Buyer may, at its option, enter into one or more Interest Rate Protection Agreements covering all or a portion of the Transaction Assets sold to Buyer hereunder, and Seller shall be responsible for all damages, judgments, costs and expenses of any kind which may be imposed on, incurred by or asserted against Buyer 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, Buyer may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Repurchase Obligations, all rights and remedies of a secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, Buyer 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 Seller 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 Transaction Assets, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Transaction Asset 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 Buyer 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. Buyer 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 Transaction Asset so sold, free of any right or equity of redemption in Seller, which right or equity is hereby waived or released. Seller further agrees, at Buyer's request, to assemble the Transaction Asset Items and make them available to Buyer at places which Buyer shall reasonably select, whether at Seller's premises or elsewhere. Buyer shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and -29- expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Transaction Asset or in any way relating to the Transaction Asset or the rights of Buyer hereunder, including without limitation reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Repurchase Obligations, in such order as Buyer may elect, and only after such application and after the payment by Buyer 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 Buyer account for the surplus, if any, to Seller. To the extent permitted by applicable law, Seller waives all claims, damages and demands it may acquire against Buyer arising out of the exercise by Buyer of any of its rights hereunder, other than those claims, damages and demands arising from the gross negligence or willful misconduct of Buyer. If any notice of a proposed sale or other disposition of Transaction Asset shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition. Seller shall remain liable for any deficiency (plus accrued interest thereon as contemplated pursuant to Section 4.01(b) hereof) if the proceeds of any sale or other disposition of the Transaction Asset (net of costs incurred in connection with such sale or other disposition) are insufficient to pay the Repurchase Obligations and the fees and disbursements of any attorneys employed by Buyer to collect such deficiency. 5.08. Limitation on Duties Regarding Preservation of Transaction Asset Items. Buyer's duty with respect to the custody, safekeeping and physical preservation of the Transaction Asset Items 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 Buyer deals with similar property for its own account. Neither Buyer 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 Transaction Assets or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Transaction Assets upon the request of Seller or otherwise. 5.09. Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Transaction Asset are irrevocable and powers coupled with an interest. 5.10. Release of Security Interest. Upon termination of this Agreement and repayment to Buyer of all Repurchase Obligations and the performance of all obligations under the Transaction Documents, Buyer shall release its security interest in any remaining Transaction Assets. 5.11. Release of Transaction Assets. Provided that no Default or Event of Default shall exist (other than one that (a) relates solely to the Transaction Assets to be released and (b) will be cured simultaneously with such release) and that Seller shall have paid all sums then due under the Transaction relating thereto, upon (i) Seller's payment in full of the Asset-Specific Transaction Balance with respect to a portion of the Transaction Assets, and (ii) receipt by Buyer of a written request from Seller for the release of such Transaction Asset, Buyer shall as soon as practicable release (and Buyer shall reasonably cooperate with Seller to facilitate reasonable escrow arrangements to facilitate a simultaneous release of) the related Transaction Asset Documents and the related Transaction Asset and any liens related thereto to Seller or, to the extent necessary to facilitate future savings of mortgage tax in states that impose mortgage taxes, assign such liens as Seller shall request; provided that any such assignments shall be without recourse, representation or warranty of any kind except that Buyer shall represent and warrant that such Transaction Asset has not been previously assigned by Buyer. Buyer shall with reasonable promptness, after a written request from Seller, execute any document or instrument necessary to effectuate such release or assignment. 5.12. Substitution of Eligible Transaction Assets. From time to time until the Custodian is otherwise notified by Buyer, which notice shall be given by Buyer only during the existence of an Event of Default, and with the prior written consent of Buyer, Seller may substitute one or more Transaction Assets with one or more substitute Eligible Transaction Assets having an aggregate Margin -30- Maintenance Asset Value equal to or greater than the Margin Maintenance Asset Value of the Transaction Asset(s) being substituted for, or obtain the release of one or more Transaction Assets; provided that, after giving effect to such substitution or re-transfer, the Repurchase Obligations then outstanding shall not exceed the Aggregate Margin Maintenance Asset Value, which determination shall be made solely by Buyer. In connection with any such requested substitution or re-transfer, Seller will provide notice to the Custodian and Buyer no later than 3:00 p.m. New York City time, on the date of such request, specifying the Transaction Asset(s) to be substituted for or re-transferred and the substitute Transaction Asset(s) to be sold hereunder in substitution thereof, if any, and shall deliver with such notice a Custodial Identification Certificate and a revised Transaction Asset Schedule indicating any substitute Transaction Assets. Section 6. Conditions Precedent. 6.01. Initial Transaction. The obligation of Buyer to enter into the initial Transaction hereunder is subject to the satisfaction, immediately prior to or concurrently with the entering into such Transaction, of the condition precedent that Buyer shall have received all of the following items and documents, each of which shall be satisfactory to Buyer and its counsel in form and substance: (a) Transaction Documents. (i) This Agreement, duly completed and executed; (ii) A Confirmation; and (iii) The Custodial Agreement, duly executed and delivered by Seller and Custodian. In addition, Seller shall have taken such other action as Buyer shall have requested in order to perfect the security interests created pursuant to the Agreement. (b) Organizational Documents. A good standing certificate and certified copies of articles of incorporation and by-laws of Seller and certificates evidencing all requisite authority for Seller with respect to the execution, delivery and performance of the Transaction Documents and each other document to be delivered by Seller from time to time in connection herewith (and Buyer may conclusively rely on such certified copies and certificates until it receives notice in writing from Seller to the contrary); (c) Legal Opinion. A legal opinion of counsel to Seller in form and substance satisfactory to Buyer in its sole discretion; (d) Trust Receipt and Transaction Asset 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 Transaction Asset 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 Transaction Asset for the benefit of Buyer, attached; and (f) Other Documents. Such other documents as Buyer may reasonably request. 6.02. Initial and Subsequent Transactions. The entering into each Transaction with Seller (including the initial Transaction) on any Business Day is subject to the delivery of all Transaction -31- Asset Documents pertaining to the Eligible Transaction Assets to be sold for such Transaction, together with all documents set forth in Section 3.03(b)(i)-(xii) and the satisfaction of the following further conditions precedent, both immediately prior to the making of such Transaction 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 Purchase Price payment; (b) Buyer shall have received from Seller, and Seller shall have received from each Transaction Asset Obligor such representations and warranties as Buyer shall, in its sole discretion, deem satisfactory. The representations and warranties made by Seller in Section 7, elsewhere in each of the Transaction Documents, shall be true and complete on and as of the date of the making of such Transaction in all material respects (in the case of the representations and warranties in Section 7.09, solely with respect to Eligible Transaction Assets included in the Aggregate Margin Maintenance Asset Value) 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). Buyer shall have received an officer's certificate signed by a Responsible Officer of Seller certifying as to the truth and accuracy of the above, which certificate shall also include a representation that (i) Seller is in compliance with all governmental licenses and authorizations, (ii) Seller 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 Transaction Asset(s) for such Transaction 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), (iv) there has been no change in the organizational and authority documents provided to Buyer pursuant to Section 6.01(b) hereof since the date of the most recent certification thereof to Buyer, and (v) there has been no Material Adverse Effect since the date of the last Purchase Price payment to Seller hereunder; (c) The aggregate Purchase Price of the Transaction Assets shall not exceed the Aggregate Margin Maintenance Asset Value; (d) Subject to Buyer's right to perform one or more Due Diligence Reviews pursuant to Section 12.15 hereof, Buyer shall have completed its due diligence review of the Transaction Asset Documents for the Transaction Asset and such other documents, records, agreements, instruments, mortgaged properties or information relating to such Transaction Asset as Buyer in its sole discretion deems appropriate to review and such review shall be satisfactory to Buyer in its sole discretion; (e) Buyer shall have received from Custodian a Trust Receipt, together with a Transaction Asset Schedule and Exception Report with Exceptions (as defined in the Custodial Agreement) as are acceptable to Buyer in its sole discretion, in respect of the Eligible Transaction Assets to be sold hereunder on such Business Day; (f) Buyer shall have received from Seller a Lender's Release Letter from an existing lender (if applicable) substantially in the form of Exhibit D-1 hereto (or such other form acceptable to Buyer) or a Seller's Release Letter substantially in the form of Exhibit D-2 hereto (or such other form acceptable to Buyer) covering each Transaction Asset to be sold to Buyer; (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 thirty (30) -32- consecutive days or an event or events shall have occurred resulting in Buyer not being able to finance any Transactions 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; (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 thirty (30) consecutive days or an event or events shall have occurred resulting in Buyer 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 Buyer which effects (or can reasonably be expected to effect) materially and adversely the ability of Buyer to fund its obligations under this Agreement; (h) Transaction Costs. Seller shall have paid Buyer from the proceeds of the Purchase Price to be paid in connection with such Transaction, all Transaction Costs for which bills have been submitted; provided, however, that nothing herein shall be deemed to waive Seller's obligation to pay all Transaction Costs whether billed before or after the entering into a Transaction pursuant to which such Transaction Costs were incurred; (i) Other Documents. Buyer shall have received such other documents, and Seller shall have taken such other action in order to perfect the ownership interest transferred hereunder and the security interests created hereunder, as Buyer 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 Confirmation by Seller hereunder shall constitute a certification by Seller that all the conditions set forth in this Section 6 have been satisfied (both as of the date of such notice, request or confirmation and as of the date of such Transaction). 6.03. Additional Requirements. (a) Seller and Buyer recognize and agree that the categories of Transaction Assets defined herein as categories of assets which may be submitted by Seller to Buyer for review by Buyer as Eligible Transaction Assets hereunder are general in nature and that the full scope of such Transaction Asset categories may be unknown. Consequently, the appropriate requirements are not fully known for (i) the documents to be provided by Seller for underwriting and due diligence review by Buyer and (ii) submittals by Seller in order to transfer ownership and to create and perfect a precautionary first priority security interest in the Transaction Asset, as the case may be. Therefore, Seller and Buyer agree that, as a further condition precedent to funding a Transaction in respect of any Transaction Asset hereunder, Seller shall have delivered to Buyer all information and documents determined by Buyer in good faith to be required for its underwriting and examination of such Transaction Asset and for the transfer of ownership or the granting and perfection of a precautionary first priority security interest therein, as the case may be. (b) Without limiting the generality of the foregoing Section 6.03(a), Seller shall execute and deliver all documents necessary for transfer of a valid ownership interest and the granting of a precautionary first priority security interest in any Transaction Asset, as the case may be, determined by -33- Buyer to be Eligible Transaction Assets hereunder, including without limitation (i) all instruments evidencing indebtedness payable to Seller or pledged to Seller as precautionary security for a Transaction, (ii) all instruments granting or perfecting a security interest for the benefit of Seller or pledged to Seller as precautionary security for a Transaction (including, without limitation, assignments, pledge agreements and UCC financing statements), (iii) all instruments evidencing an interest in an entity pledged to Seller as precautionary security for a Transaction (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 Seller, or pledged to Seller for the repayment of a Repurchase Price 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 a Transaction Asset. Section 7. Representations and Warranties. Seller represents and warrants to Buyer that throughout the term of this Agreement: 7.01. Existence. Seller (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its organization, (b) has all requisite corporate 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. 7.02. Action. Seller has all necessary power, authority and legal right to execute, deliver and perform its obligations under each of the Transaction Documents; the execution, delivery and performance by Seller of each of the Transaction Documents have been duly authorized by all necessary action on its part; and each Transaction Document has been duly and validly executed and delivered by Seller and constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. 7.03. 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 Seller or any of its 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 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 $5,000,000.00, (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. 7.04. No Breach. Neither (a) the execution and delivery of the Transaction 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 Seller, 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 Seller or any of its 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 Agreement) -34- upon any Property of Seller or any of its Subsidiaries pursuant to the terms of any such agreement or instrument. 7.05. 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 Seller of the Transaction Documents or for the legality, validity or enforceability thereof, except for filings and recordings in respect of the Liens created pursuant to this Agreement. 7.06. Use of Proceeds; Margin Regulations. Neither the making of any Transaction 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 Transaction 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 Buyer, Seller, any applicable Affiliate or Subsidiary of Seller and the recipient of any portion of the proceeds all or any portion of any Transaction shall furnish to Buyer a statement on Federal Reserve Form G-3 referred to in Regulation U. 7.07. Taxes. Seller and its 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 Seller and its consolidated Subsidiaries in respect of taxes and other governmental charges are, in the opinion of Seller, adequate. 7.08. Investment Company Act. Seller is not required to register as an "investment company" under the Investment Company Act of 1940, as amended. 7.09. Transaction Assets; Transfer of Ownership and Precautionary Collateral Security. (a) Seller has not assigned, pledged, or otherwise conveyed or encumbered any Eligible Transaction Asset to any other Person, and immediately prior to the sale and precautionary pledge of such Eligible Transaction Asset to Buyer, unless otherwise approved by Buyer in writing, Seller was the sole owner of such Eligible Transaction Asset 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 transfer of ownership and granting of the precautionary Liens in favor of Buyer hereunder. (b) The provisions of this Agreement are effective to either constitute a sale of the Transaction Assets or create in favor of Buyer a valid security interest in all right, title and interest of Seller in, to and under the Transaction Asset. (c) (i) Upon (x) receipt by Custodian of each Mortgage Note evidencing a Subordinate Mortgage Loan or Whole Loan, as applicable, endorsed in blank by a duly authorized officer of Seller, (y) the recordation of the mortgage to Buyer securing such Subordinate Mortgage Loan or Whole Loan, as applicable, and an assignment of such mortgage and (z) the filing of a UCC financing statement with respect to such assignment of mortgage, Buyer shall either be the owner of the Subordinate Mortgage -35- Loan or Whole Loan or have a fully perfected first priority security interest in the Mortgage Note, subject only to prior liens and encumbrances permitted by Buyer, in the Subordinate Mortgage Loan or Whole Loan, as applicable, evidenced thereby and in Seller'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 Seller, (y) the delivery of a duly executed pledge to Seller 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 Seller of a duly executed pledge of such pledged interests and the filing of UCC assignment statements with respect thereto, Buyer shall either be the owner of the Mezzanine Loan or have a fully perfected first priority security interest in such note, in the Mezzanine Loan evidenced thereby, and in Seller's interest in the related Property. (iii) Upon (i) the delivery to Buyer or its designee of CMBS or other Transaction Assets constituting securities (as defined in Article 8 of the Uniform Commercial Code) in accordance with Section 6.02 hereof and (ii) the filing of UCC financing statements naming Buyer as "Secured Party" and Seller as "Debtor", and describing the Transaction Asset, in the jurisdictions and recording offices for which security interests may be perfected in the Transaction Asset by the filing of UCC financing statements, either Buyer will have a valid ownership interest or the security interests granted hereunder in the Transaction Asset will constitute fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of Seller in, to and under such Transaction Asset, and, without limiting the foregoing, Buyer will have a "securities entitlement" (as defined in Article 8 of the Uniform Commercial Code) in the Transaction Asset referenced in the foregoing clause (i). (iv) As to all other Eligible Transaction Assets (including, but not limited to, a B Note, a Mezzanine Loan or a Preferred Equity Interest), upon receipt by Custodian of all documents set forth in Buyer's notice to Seller pursuant to Section 3.03(c) hereof, Buyer shall have either a valid ownership interest or a fully perfected first priority security interest therein and in Seller's interest in the related Property. (d) Upon the filing of UCC financing statements naming Buyer as "Secured Party" and Seller as "Debtor", and describing the Transaction Asset, in the jurisdictions and recording offices for which security interests may be perfected in the Transaction Asset by the filing of UCC financing statements, the security interests granted hereunder in the Transaction Asset will constitute either a valid ownership interest or a fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of Seller in, to and under such Transaction Asset which can be perfected by filing under the Uniform Commercial Code. 7.10. Chief Executive Office. Seller's chief executive office on the Effective Date is located at 410 Park Avenue, 14th Floor, New York, New York 10022. 7.11. Location of Books and Records. The location where Seller keeps its books and records, including all computer tapes and records relating to the Transaction Assets is its chief executive office. 7.12. True and Complete Disclosure. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of Seller to Buyer in connection with the negotiation, preparation or delivery of this Agreement and the other Transaction 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 or (y) omit to state any material fact necessary to make the statements -36- 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 Seller to Buyer in connection with this Agreement and the other Transaction 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 Seller, after due inquiry, that could reasonably be expected to have a Material Adverse Effect that has not been disclosed herein, in the other Transaction Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to Buyer for use in connection with the transactions contemplated hereby or thereby. 7.13. ERISA. Each Plan to which Seller or its Subsidiaries make direct contributions, and, to the knowledge of Seller, 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 Seller would be under an obligation to furnish a report to Buyer under Section 8.01(e) hereof assuming a request therefor has been made by Buyer. Section 8. Covenants of Seller. Seller covenants and agrees with Buyer that, so long as any Transaction is outstanding and until payment in full of all Repurchase Obligations: 8.01. Financial Statements, Reports, etc. Seller shall, or, to the extent applicable, shall cause Servicer to, deliver to Buyer: (a) the Monthly Statement; (b) as soon as available and in any event within sixty (60) days after the end of each of the first three quarterly fiscal periods of each fiscal year of Seller, a status report with respect to such period which describes the cumulative sources and uses of funds for the immediately preceding calendar quarter on each asset sold under this Agreement and a detailed report in a form reasonably satisfactory to Buyer, together with the unaudited, consolidated balance sheets of Seller 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 of Seller 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 Seller, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of 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); (c) 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 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 Seller 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 Seller 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; -37- (d) within sixty (60) days following the end of each of the first three calendar quarters in any fiscal year, or within ninety (90) days following the end of each fiscal year, as the case may be, a certificate from a Responsible Officer 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 this Agreement and the other Transaction 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 Buyer's request, such further information with respect to the operation of any real property, the Transaction Asset, the financial affairs of 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; (f) upon Buyer's request, a copy of any financial or other report Seller shall receive from any underlying obligor with respect to a Transaction Asset within fifteen (15) days after Seller's receipt thereof; and (g) such other reports as Buyer shall reasonably require. 8.02. Litigation. Seller will 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 any of its 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 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 $1,000,000.00, or (iii) which, individually or in the aggregate, if adversely determined could reasonably be likely to have a Material Adverse Effect. 8.03. Existence, etc. Seller will: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (provided that nothing in this Section 8.03(a) shall prohibit any transaction expressly permitted under Section 8.04 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; (d) not move its chief executive office from the address referred to in Section 7.10 unless it shall have provided Buyer ten (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 -38- 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 Buyer, 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 Buyer. 8.04. Prohibition of Fundamental Changes. Seller shall not 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 Seller 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 Buyer in Buyer's sole discretion, the performance of all of Seller's duties and obligations under this Agreement and the Transaction Documents; and (c) 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 if after giving effect thereto, no Default would exist hereunder. 8.05. Aggregate Margin Maintenance Asset Value Deficiency. If at any time there exists an Aggregate Margin Maintenance Asset Value Deficiency, Seller shall cure same in accordance with Section 3.04 hereof. 8.06. Notices. Seller shall give notice to Buyer: (a) promptly upon receipt of notice or knowledge of the occurrence of any Default or Event of Default; (b) with respect to any Transaction Asset sold to Buyer hereunder, immediately upon receipt of any principal payment (in full or partial) or payment in respect of an Equity Interest; (c) with respect to any Transaction Asset sold to Buyer hereunder, immediately upon receipt 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 Transaction Asset; (d) promptly upon receipt of notice or knowledge of (i) any default related to any Transaction Asset unless otherwise specifically approved by Buyer in writing, (ii) any Lien or security interest (other than security interests created hereby or by the other Transaction Documents) on, or claim asserted against, any of the Transaction Asset, (iii) any event or change in circumstances has or could reasonably be expected to have an adverse affect on the Margin Maintenance Asset Value of the Transaction Asset for a Transaction or (iv) any event or change in circumstances which could reasonably be expected to have a Material Adverse Effect; (e) with respect to any Transaction Asset sold to Buyer hereunder, promptly upon entering into a modification of any documents pertaining to such Transaction Asset which would have a material adverse effect on such Transaction Asset; and (f) with respect to any Transaction Asset, immediately upon the acquisition or receipt by Seller or any Affiliate of Seller of any interest of any kind in respect of such Transaction Asset which interest has not been sold to Buyer as Transaction Asset Item under this Agreement. -39- Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of Seller setting forth details of the occurrence referred to therein and stating what action Seller has taken or proposes to take with respect thereto. 8.07. Reports. Seller shall provide Buyer with a quarterly report, which report shall include, among other items, a summary of Seller's delinquency and loss experience with respect to any Transaction Asset serviced by Seller, any Servicer or any designee of either, plus any such additional reports as Buyer may reasonably request with respect to Seller's or any Servicer's servicing portfolio or pending originations of Transaction Assets. 8.08. Transactions with Affiliates. Seller will not, except as approved by Buyer in writing, enter into any transaction in any manner relating to any Transaction Asset hereunder, including without limitation any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate; provided, however, that Buyer may consider for approval any such transaction which is (a) otherwise permitted under this Agreement, (b) in the ordinary course of Seller's business and (c) upon fair and reasonable terms no less favorable to Seller 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 8.08 to any Affiliate. 8.09. Foreclosure or Other Remediation by Seller. 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 underlying loans held by Seller relating to any Transaction Asset hereunder. 8.10. Limitation on Liens. Seller will defend the Transaction Asset against, and will take such other action as is necessary to remove, any Lien, security interest or claim on or to the Transaction Assets, other than the security interests created, or otherwise specifically permitted in writing by Buyer under this Agreement, and Seller will defend the right, title and interest of Buyer's in and to any Transaction Asset against the claims and demands of all persons whomsoever. Seller may request from time to time, subject to Buyer's approval in Buyer's sole determination, to sell participation interests in its interests in Transaction Assets, the sale of which participation interests shall be arm's length transactions and subject to such terms and conditions as Buyer in its sole discretion shall require. 8.11. Limitation on Distributions. After the occurrence and during the continuation of any Event of Default, Seller 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 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; provided that Seller shall make such distributions which shall be sufficient to maintain REIT rule compliance. 8.12. Maintenance of Ratio of Earnings Before Interest, Taxes, Depreciation and Amortization to Interest and Preferred Dividends. Seller shall not permit the ratio of (a) earnings before interest, taxes, depreciation and amortization (excluding dividends) of Seller and its consolidated Subsidiaries to (b) the sum of (i) interest expense and (ii) preferred dividends of Seller and its consolidated Subsidiaries, to be less than 1.20:1. 8.13. Maintenance of Ratio of Total Indebtedness to Tangible Net Worth. Seller shall not permit the ratio of Total Indebtedness to Tangible Net Worth at any time to be greater than 5:1. Buyer may consider waiving the foregoing requirements under certain circumstances if requested by Seller; however, Buyer shall be under no obligation to do so. -40- 8.14. Servicer; Servicing Tape. Seller shall provide to Buyer 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 Buyer from time to time, on a loan-by-loan basis and in the aggregate, with respect to the Loan Assets, B Notes, CMBS, Preferred Equity Interests, participation interests in any of the foregoing and Other Approved Assets serviced hereunder by Seller or any Servicer. Seller shall not cause any Transaction Asset to be serviced by any servicer other than a servicer expressly approved in writing by Buyer. 8.15. Remittance of Prepayments. Seller shall remit, with sufficient detail to enable Buyer to appropriately identify the Transaction, or Transactions, to which any amount remitted applies, to Buyer on each Business Day an amount equal to the product of (i) all principal prepayments that the Seller has received during the previous Business Day and (ii) the Purchase Rate for the related Transaction Asset, together with all Periodic Advance Repurchase Payments and Late Fees due with respect to such Transaction or Transactions through the date of such remittance, any and all charges due with respect to such Transactions and any and all costs and expenses incurred by Buyer (as provided in this Agreement) in connection with such Transactions and the prepayment of the Repurchase Price in respect thereof. Section 9. Events of Default. Each of the following events shall constitute an event of default (an "Event of Default") hereunder: (a) Seller shall default in the payment of any Repurchase Price or Periodic Advance Repurchase Price Payment with respect to any Transaction when due; or (b) Seller shall default in the payment of any repurchase price or periodic payments with respect to, or principal of or interest on, any MS Indebtedness when due (whether at stated maturity, upon acceleration or at mandatory or optional prepayment, if applicable) or (c) Seller shall default in the payment of any other amount payable by it hereunder or under any other Transaction Document after notification by Buyer 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 Transaction Document by Seller or any certificate furnished to Buyer 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 7.09 hereof which shall be considered solely for the purpose of Section 3.04(b) hereof unless Seller shall have made any such representations and warranties with knowledge that they were materially false or misleading at the time made); or (e) Seller shall fail to comply with the requirements of Section 8.03(a), Section 8.04, Section 8.05, Section 8.06, or Sections 8.08 through 8.15 hereof; or Seller shall otherwise fail to comply with the requirements of Section 8.03 hereof and such default shall continue unremedied for a period of ten (10) Business Days; or Seller shall fail to observe or perform any other covenant or agreement contained in this Agreement or any other Transaction 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 $5,000,000.00 in the aggregate shall be rendered against Seller or any of its Subsidiaries by one or more courts, administrative tribunals or other bodies having jurisdiction and the same shall not be satisfied, discharged -41- (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 Seller 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) Seller shall admit in writing its inability to pay its debts as such debts become due; or (h) Seller 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 Seller or any of its Subsidiaries, in any court of competent jurisdiction, seeking (i) its 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 Seller or any such Subsidiary or of all or any substantial part of its property, or (iii) similar relief in respect of Seller 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 Seller or any such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (j) the Custodial Agreement or any Transaction Document shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by Seller; or (k) Seller shall grant, or suffer to exist, any Lien on any Transaction Asset except the Liens contemplated hereby; or the Liens contemplated hereby shall cease to be first priority perfected Liens on the Transaction Asset in favor of Buyer or shall be Liens in favor of any Person other than Buyer; or (l) Seller or any of its respective 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 $10,000,000.00; (m) any materially adverse change in the business or financial condition of Seller or any of its Subsidiaries shall occur, in each case as determined by Buyer in its sole discretion, or any other condition shall exist which, in Buyer's sole discretion, constitutes a material impairment of Seller's ability to perform its obligations under this Agreement or any other Transaction Document; -42- (n) MS & Co.'s corporate bond rating has been lowered or downgraded to a rating below A- by S&P or A3 by Moody's and Seller shall have failed to repay all amounts owing to Buyer under this Agreement and the other Transaction Documents within ninety (90) days following such downgrade; or (o) the matters set forth in the certificate delivered by Seller pursuant to paragraph 6.01(c) shall at any time cease to be true. Section 10. Remedies Upon Default. (a) Upon the occurrence of one or more Events of Default other than those referred to in Section 9(g) or Section 9(h), Buyer may immediately declare the Repurchase Price of the Transactions then outstanding to be immediately due and payable, together with all interest thereon and fees and expenses accruing under this Agreement. Upon the occurrence of an Event of Default referred to in Section 9(g) or Section 9(h), the Repurchase Price shall immediately and automatically become due and payable without any further action by any Person. (b) Upon the occurrence of one or more Events of Default, Buyer shall have the right to obtain physical possession of the Servicing Records and all other files of Seller relating to the Transaction Assets and all documents relating to the Transaction Assets which are then or may thereafter come in to the possession of Seller or any third party acting for Seller and Seller shall deliver to Buyer such assignments as Buyer shall request. Buyer shall be entitled to specific performance of all agreements of Seller contained in this Agreement. (c) Upon the occurrence of an Event of Default, 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 to any indebtedness at any time owing to Buyer to the credit or for the account of Seller against any and all of the Indebtedness of Seller, irrespective of whether Buyer shall have made any demand under this Agreement, the Note, any other Security Document or any other document executed in connection with any other MS Indebtedness. Section 11. No Duty of Buyer. The powers conferred on Buyer hereunder are solely to protect Buyer's interests in the Transaction Assets and shall not impose any duty upon it to exercise any such powers. Buyer 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 Seller for any act or failure to act hereunder, except for its or their own gross negligence or willful misconduct. Section 12. Miscellaneous. 12.01. Waiver. No failure on the part of Buyer to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Transaction Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any Transaction 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. 12.02. Notices. Except as otherwise expressly permitted by this 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 Agreement) shall be given or made in writing (including without limitation by telex or telecopy) delivered to the intended -43- 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 Agreement and except for notices given under Section 3 (which shall be effective only on receipt), all such communications shall be 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. 12.03. Indemnification and Expenses. (a) Seller agrees to hold Buyer, 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 Agreement, any Confirmations, any other Transaction 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 Agreement, any Confirmations, any other Transaction 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, Seller agrees to hold any Indemnified Party harmless from and indemnify such Indemnified Party against all Costs with respect to all Transaction Assets 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 Transaction Asset for any sum owing thereunder, or to enforce any provisions of any Transaction Asset Document, Seller 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 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 this Agreement, the Confirmation, any other Transaction Document or any transaction contemplated hereby or thereby, including without limitation the reasonable fees and disbursements of its counsel. In the event the sale of a Transaction Asset is re-characterized as a loan, Seller hereby acknowledges that, notwithstanding the fact that the obligations of Seller are secured by such Transaction Asset, all obligations of Seller 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, this Agreement, any Confirmation, any other Transaction Document 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, inspection, testing and review costs and expenses incurred by Buyer with respect to Transaction Asset under this Agreement, including, but not limited to, those costs and expenses incurred by Buyer pursuant to Sections 12.03(a), 12.14 and 12.15 hereof. -44- 12.04. Amendments. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by Seller and Buyer and any provision of this Agreement may be waived by Buyer. 12.05. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.06. Survival. The obligations of Seller under Sections 4.04 and 12.03 hereof shall survive the repayment of the Transactions and the termination of this Agreement. In addition, each representation and warranty made or deemed to be made by delivery of a Confirmation by Seller, herein or pursuant hereto shall survive the entering into of such representation and warranty, and Buyer shall not be deemed to have waived, by reason of making any Transaction, any Default that may arise because any such representation or warranty shall have proved to be false or misleading, notwithstanding that Buyer may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such Transaction was made. 12.07. 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 Agreement. 12.08. Counterparts. This 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 Agreement by signing any such counterpart. 12.09. Agreement Constitutes Security Agreement; Governing Law. This Agreement shall be governed by the internal laws of the State of New York, and shall constitute a security agreement within the meaning of the Uniform Commercial Code. 12.10. SUBMISSION TO JURISDICTION; WAIVERS. SELLER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE CONFIRMATIONS AND THE OTHER TRANSACTION 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 -45- UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH BUYER 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. 12.11. WAIVER OF JURY TRIAL. EACH OF SELLER AND BUYER 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 AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 12.12. Acknowledgments. Seller hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Transaction Documents; (b) Buyer has no fiduciary relationship to Seller; and (c) no joint venture exists between Buyer and Seller. 12.13. Hypothecation or Pledge of Transactions. Buyer shall have free and unrestricted use of all Transaction Assets and nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Transaction Assets or otherwise pledging, re-pledging, hypothecating, or re-hypothecating the Transaction Assets or pledging or otherwise transferring its rights to payment hereunder in respect of any Transaction made hereunder; provided that (i) no action by Buyer referred to in this sentence shall confer on any Person other than Buyer any right against Seller to require any prepayment of the Purchase Price under Section 3.04 hereof, the right to determine the Purchase Price or Asset Value with respect to any Transaction Asset or any right to enforce against Seller any other provision of this Agreement, but may grant to any Person the right to require Buyer to enforce any such provisions and (ii) in no event shall Buyer be permitted to assign or transfer (but shall be permitted to participate or pledge) any interest in any Transaction Asset or this Agreement without the prior notice to Seller. Nothing contained in this Agreement shall obligate Buyer to segregate any Transaction Asset delivered to Buyer by Seller. 12.14. Servicing. (a) Seller covenants to maintain or cause the servicing of the Transaction Asset to be maintained with respect to each type of Transaction Asset transferred to Buyer hereunder in conformity with accepted and prudent servicing practices in the industry for such same type of Transaction Asset and in a manner at least equal in quality to the servicing Seller provides for assets similar to such Transaction Asset 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 Repurchase Obligations have been paid in full or (iii) the transfer of servicing approved by Seller and Buyer, which Buyer's approval shall not be unreasonably withheld. Midland Loan Services, Inc. shall be the initial servicer. (b) If the Transaction Assets, or any portion thereof, are serviced by Seller, (i) Seller agrees that Buyer is the owner and precautionary collateral assignee of all servicing records, including but -46- 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 Transaction Asset (the "Servicing Records"), and (ii) Seller transfers to Buyer a valid ownership interest and grants Buyer a precautionary security interest in all servicing fees and rights relating to such Transaction Asset and all Servicing Records to secure the obligation of Seller or its designee to service in conformity with this Section and any other obligation of Seller to Buyer. Seller covenants to safeguard such Servicing Records and to deliver them promptly to Buyer or its designee (including Custodian) at Buyer's request. (c) If the Transaction Assets, or any portion thereof, are serviced by a third party servicer (such third party servicer, the "Servicer"), Seller (i) shall provide a copy of the servicing agreement to Buyer, which shall be in form and substance acceptable to Buyer (the "Servicing Agreement") and (ii) hereby irrevocably assigns to Buyer and Buyer's successors and assigns all right, title, interest of Seller in, to and under, and the benefits of, any Servicing Agreement with respect to such Transaction Asset. Any successor to the Servicer shall be approved in writing by Buyer prior to such successor's assumption of servicing obligations with respect to such Transaction Asset. (d) Seller shall provide to Buyer a letter from Seller (if Seller is the Servicer) or the Servicer, as the case may be, to the effect that upon the occurrence of an Event of Default, Buyer may terminate any Servicing Agreement and transfer servicing to its designee, at no cost or expense to Buyer, it being agreed that Seller will pay any and all fees required to terminate the Servicing Agreement and to effectuate the transfer of servicing to the designee of Buyer. (e) After the Purchase Date, until the rights to any Transaction Assets under the Transaction Documents are relinquished by Custodian, Seller will have no right to modify or alter the terms of any of the documents pertaining to such Transaction Asset and Seller will have no obligation or right to repossess such Transaction Asset or substitute other Transaction Asset, except as provided in the Custodial Agreement; provided, however, that so long as no Default or Event of Default has occurred and is continuing, Seller may enter into such modifications of the terms of such documents as do not, as to any specific Transaction Asset, (i) result in a negative monetary effect or (ii) constitute a material adverse effect. (f) In the event Seller or its Affiliate is servicing any Transaction Asset, 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 Transaction Asset as provided in this Agreement. (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. 12.15. Periodic Due Diligence Review. Seller acknowledges that Buyer has the right to perform continuing due diligence reviews with respect to any Transaction Asset, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or determining and re-determining the Aggregate Margin Maintenance Asset Value under Section 3.04(a) hereof, 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 Transaction Assets securing the Transactions, including, without limitation, ordering new credit reports and Appraisals on the applicable Transaction Asset and otherwise regenerating the information used to originate such Transaction Asset(s). 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 -47- extracts of, the Asset Files and any and all documents, records, agreements, instruments or information relating to such Transaction Asset in the possession or under the control of Seller and/or Custodian. Seller also shall make available to Buyer a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Asset Files and the Transaction Assets. 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 Transaction Asset in the possession, or under the control, of Seller. Seller further agrees that Seller shall reimburse Buyer for any and all out-of-pocket costs and expenses incurred by Buyer in connection with Buyer's activities pursuant to this Section 12.15. 12.16. Intent. (a) The parties hereto recognize that each Transaction is a "repurchase agreement" as that term is defined in Section 101 of Bankruptcy Code (except insofar as the type of Transaction Assets subject to such Transaction or the term of such Transaction would render such definition inapplicable), or a "securities contract" as that term is defined in Section 741 of the Bankruptcy Code (except insofar as the type of Transaction Assets subject to such Transaction would render such definition inapplicable). (b) It is understood that either party's right to liquidate Transaction Assets delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Section 5 hereof is a contractual right to liquidate such Transaction as described in Sections 555 and 559 of the Bankruptcy Code. (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 Transaction 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 "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 or regulations promulgated thereunder). 12.17. Change of Seller's State of Formation. If Seller shall change the State under whose laws Seller shall be organized, Seller shall promptly provide Buyer 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 Seller's new State of formation, if applicable, together with such opinions of counsel regarding such change as Buyer, in its sole discretion, shall require. 12.18. Set-Off. In addition to any rights and remedies of Buyer provided by this Agreement and by law, Buyer shall have the right, without prior notice to Seller, any such notice being expressly waived by Seller to the extent permitted by applicable law, upon any amount becoming due and payable by Seller 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 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 Buyer or any Affiliate thereof to or for the credit or the account of Seller. Buyer agrees -48- promptly to notify Seller after any such set-off and application made by Buyer; provided that the failure to give such notice shall not affect the validity of such set-off and application. [SIGNATURE PAGE FOLLOWS] -49- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. CAPITAL TRUST, INC., as Seller By: /s/ Geoffrey G. Jervis Name: Geoffrey G. Jervis Title: Chief Financial Officer Address for Notices: -------------------- 410 Park Avenue, 14th floor New York, New York 10022 Attention: Geoffrey G. 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 MORGAN STANLEY BANK, as Buyer By: /s/ Andrew Neuberger Name: Andrew Neuberger Title: Vice President Address for Notices: -------------------- Morgan Stanley Bank 2500 Lake Park Boulevard, Suite 3C West Valley City, Utah 84120 Attention: Richard Felix Telephone: 801-902-4055 Facsimile: 801-902-4087 E-mail: richard.felix@morganstanley.com and wltapes@morganstanley.com [SIGNATURE PAGE TO MASTER REPURCHASE AGREEMENT] with copies to: --------------- SPG Warehouse Group 1221 Avenue of Americas, 27th Floor New York, New York 10020 Attention: Andrew Neuberger Telephone: 212-762-6401 Facsimile: 212-507-4137 E-mail: andrew.neuberger@morganstanley.com and Morgan Stanley Law Division 1221 Avenue of the Americas, 5th Floor New York, New York 10020 Attention: Su Sun Bai, Esq. Telephone: 212-761-4729 Facsimile: 212-296-3146 E-mail: su.bai@morganstanley.com and Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 Attention: David C. Djaha, Esq. Telephone: 212-878-8158 Facsimile: 212-878-8375 E-mail: david.djaha@cliffordchance.com [SIGNATURE PAGE TO MASTER REPURCHASE AGREEMENT] SCHEDULE 1 FILING JURISDICTIONS AND OFFICES Maryland Secretary of State 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 S2-1 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 S3-1 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 S4-1 SCHEDULE 5 ORGANIZATIONAL STRUCTURE CHART OF SELLER S5-1 EXHIBIT A --------- [FORM OF CONFIRMATION] Master Repurchase Agreement, dated as of July __, 2005 (the "Repurchase Agreement"), by and between Seller and Morgan Stanley Bank (the "Buyer"), Buyer: Morgan Stanley Bank Seller: CTMP III MS Finance Sub, LLC Requested Fund Date: ___________________________________________ Transmission Date: ___________________________________________ Transmission Time: ___________________________________________ Type of Funding: Table-Funded:______________________________ Non-Table Funded:__________________________ Eligible Transaction Assets to be Pledged: See Attached Unpaid Principal Balance: $__________________________________________ Requested Wire Amount: $__________________________________________ Purchase Rate: __________________________________________ Maximum Purchase Rate _________________________________________ Eurodollar Rate Spread: __________________________________________ Wire Instructions: Requested by: Capital Trust, Inc. By: ---------------------------------------------- Name: Title:
A-1 Attachment 1 ------------ SCHEDULE OF ELIGIBLE TRANSACTIION ASSETS PROPOSED TO BE SOLD A-2 Attachment 2 ------------ OFFICER'S CERTIFICATE The undersigned hereby certifies to Buyer on behalf of Seller, as of the requested Purchase Date, that: (a) no Default or Event of Default has occurred and is continuing on the date hereof nor will occur after giving effect to such Transaction as a result of such Transaction; (b) each of the representations and warranties made by Seller in or pursuant to the Transaction Documents is true and correct in all material respects on and as of such date (in the case of the representations and warranties in Section 7.09 of the Agreement solely with respect to Eligible Transaction Assets being included the Aggregate Margin Maintenance Asset Value on such Purchase Date) as if made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (c) Seller (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite corporate 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; and (c) is qualified to do business and is 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. Responsible Officer Certification: By: ---------------------------------------------- Name: Title: A-3 EXHIBIT B --------- [FORM OF CUSTODIAL AGREEMENT] B-1 EXHIBIT C --------- [Intentionally Omitted] C-1 EXHIBIT D-1 ----------- [FORM OF EXISTING LENDER'S RELEASE LETTER] (Date) Morgan Stanley Bank 1221 Avenue of the Americas New York, New York 10020 Attention: ----------------- Facsimile: ----------------- Re: Certain Transaction Assets Identified on Schedule A hereto and owned by Capital Trust, Inc. The undersigned hereby releases all right, interest, lien or claim of any kind with respect to the Transaction Assets 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, [EXISTING LENDER] By: ------------------------------- Name: Title: D-1-1 EXHIBIT D-2 ----------- [FORM OF SELLER'S RELEASE LETTER] (Date) Morgan Stanley Bank 1221 Avenue of the Americas New York, New York 10020 Attention: -------------------------------- Facsimile: -------------------------------- Re: Master Repurchase Agreement, dated as of _______, 2005 (the "Repurchase Agreement"), by and between Capital Trust, Inc. (the "Seller") and Morgan Stanley Bank (the "Buyer") Ladies and Gentlemen: With respect to the Transaction Assets described in the attached Schedule A (the "Transaction Assets") (a) we hereby certify to you that the Transaction Assets are not subject to a lien of any third party and (b) we hereby release all right, interest or claim of any kind with respect to such Transaction Assets (other than the repurchase right pursuant to the terms of the Repurchase Agreement), such release to be effective automatically without further action by any party upon payment from Morgan Stanley Bank of the amount of the Purchase Price contemplated under the Repurchase Agreement (calculated in accordance with the terms thereof) in accordance with the wiring instructions set forth in the Repurchase Agreement. Very truly yours, Capital Trust, Inc. By: -------------------------------- Name: Title: D-2-1 EXHIBIT E --------- [FORM OF BAILEE AGREEMENT] [SELLER'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 sale by Capital Trust, Inc. ("Seller") to Morgan Stanley Bank ("Buyer") Ladies and Gentlemen: In consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller, Buyer and Paul, Hastings, Janofsky & Walker LLP ("Bailee") hereby agree as follows: 1. Seller shall deliver to Bailee in connection with any Transaction Assets delivered to Bailee hereunder an Identification Certificate in the form of Attachment 1 attached hereto to which shall be attached a Transaction Asset Schedule identifying which Eligible Transaction Assets are being delivered to Bailee hereunder. Such Transaction Asset Schedule shall contain the following fields of information: (a) the loan identifying number; (b) the Transaction Asset 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 Seller (the "Purchase Date"), Seller shall have delivered to Bailee, as bailee for hire, the original documents set forth on Schedule A attached hereto (collectively, the "Asset File") for each of the Eligible Transaction Assets (each a "Transaction Asset" and collectively, the "Transaction Assets") listed in Exhibit A to Attachment 1 attached hereto (the "Transaction Asset Schedule"). 3. Bailee shall issue and deliver to Buyer and Custodian on or prior to the Purchase Date by facsimile in the name of Buyer, 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 Bailee has received the documents comprising the Asset File as set forth in the Custodial Identification Certificate (as defined in that certain Custodial Agreement dated as of July __, 2005, 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 July __, 2005, among Seller and Buyer (the "Agreement"). 4. On the applicable Purchase Date, in the event that Buyer fails to enter into a Transaction with Seller with respect to the Transaction Assets identified in the related Custodial Identification Certificate, Buyer 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 Asset Files with respect to E-1 the Transaction Assets identified therein to Seller. Upon receipt of such Facsimile Authorization, the Bailee shall release the Asset Files to Seller in accordance with Seller's instructions. 5. Following the Purchase Date, Bailee shall forward the Asset Files to Deutsche Bank Trust Company Americas, 1761 East St. Andrew Place, Santa Ana, California 92705, Attention: Mortgage Custody-[_________________] (the "Custodian") by insured overnight courier for receipt by Custodian no later than 12:00 p.m. on the third Business Day following the applicable Purchase Date (the "Delivery Date"). 6. From and after the applicable Purchase Date until the time of receipt of the Facsimile Authorization or the applicable Delivery Date, as applicable, Bailee (a) shall maintain continuous custody and control of the related Asset Files as bailee for Buyer and (b) is holding the related Loan Assets as sole and exclusive bailee for Buyer unless and until otherwise instructed in writing by Buyer. 7. Seller agrees to indemnify and hold 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 Bailee) were imposed on, incurred by or asserted against Bailee because of the breach by Bailee of its obligations hereunder, which breach was caused by negligence, lack of good faith or willful misconduct on the part of 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 Bailee fails to produce a Transaction Asset Note, assignment of collateral or any other document related to a Transaction Asset that was in its possession within ten (10) business days after required or requested by Seller or Buyer (a "Delivery Failure"), the Bailee shall indemnify Seller or Buyer in accordance with the succeeding paragraph of this Section 8. (b) Bailee agrees to indemnify and hold 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 Bailee's negligence, lack of good faith or willful misconduct. The foregoing indemnification shall survive any termination or assignment of this Bailee Agreement. 9. Seller hereby represents, warrants and covenants that Bailee is not an affiliate of or otherwise controlled by Seller. Notwithstanding the foregoing, the parties hereby acknowledge that Bailee hereunder may act as Counsel to Seller in connection with a proposed loan and Paul, Hastings, Janofsky & Walker LLP, if acting as Bailee, has represented Seller in connection with negotiation, execution and delivery of the Agreement. 10. In connection with a pledge of the Transaction Assets as collateral for an obligation of Buyer, Buyer may pledge its interest in the corresponding Asset Files held by Bailee for the benefit of Buyer from time to time by delivering written notice to Bailee that Buyer has pledged its interest in the identified Transaction Assets and Asset Files, together with the identity of the party to whom the Transaction Assets have been pledged (such party, the "Pledgee"). Upon receipt of such notice from E-2 Buyer, Bailee shall mark its records to reflect the pledge of the Transaction Assets by Buyer to the Pledgee. Bailee's records shall reflect the pledge of the Transaction Assets by Buyer to the Pledgee until such time as the Bailee receives written instructions from Buyer that the Transaction Assets are no longer pledged by Buyer to the Pledgee, at which time the Bailee shall change its records to reflect the release of the pledge of the Loan Assets and that Bailee is holding the Transaction Assets as custodian for, and for the benefit of, 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 5-B to the Custodial Agreement the delivery by Custodian to Bailee of some or all of the Asset File for the purposes set forth in such request, provided that such request shall include an agreement (a "Disposition Agreement") in execution form, among Buyer, Seller and Bailee, providing for the disposition of such Asset File or portion thereof. Upon receipt of the Asset File or such portions thereof, Bailee shall hold the same as sole and exclusive bailee for Buyer until such time as the Asset 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 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 Asset 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 Asset 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 Seller or Bailee without the prior written consent of 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 governed by construed in accordance with the internal laws of the State of New York. 16. Capitalized terms used herein and defined herein shall have the meanings ascribed to them in the Agreement. [SIGNATURES BEGIN ON NEXT PAGE] E-3 Very truly yours, CAPITAL TRUST, INC. Seller By: ___________________________ Name: Title: ACCEPTED AND AGREED: PAUL, HASTINGS, JANOFSKY & WALKER LLP, Bailee By: __________________________ Name: ACCEPTED AND AGREED: MORGAN STANLEY BANK, Buyer By: __________________________ Name: Title: E-4 Schedule A [List of Pledged Documents] E-5 Attachment 1 IDENTIFICATION CERTIFICATE On this ____ day of ____________, 200_, ________________________ (the "________"), under that certain Bailee Agreement of even date herewith (the "Bailee Agreement"), among Seller, PAUL, HASTINGS, JANOFSKY & WALKER LLP ("Bailee"), and MORGAN STANLEY BANK, as Buyer, does hereby instruct Bailee to hold, in its capacity as Bailee, the Asset Files with respect to the Transaction Assets listed on Exhibit A hereto, which Transaction Assets 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, Seller has caused this Identification Certificate to be executed and delivered by its duly authorized officer as of the day and year first above written. --------------------------------, Seller By: ______________________________ Name: Title: E-6 Exhibit A to Attachment 1 TRANSACTION ASSET SCHEDULE E-7 Attachment 2 FORM OF BAILEE'S TRUST RECEIPT AND CERTIFICATION ____________, 200_ Morgan Stanley Bank 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 Capital Trust, Inc. ("Seller"), Morgan Stanley Bank ("Buyer") and Paul, Hastings, Janofsky & Walker LLP ("Bailee") Ladies and Gentlemen: In accordance with the provisions of Paragraph 3 of the above-referenced Bailee Agreement, the undersigned, as Bailee, hereby certifies that as to each Transaction Asset described in the Transaction Asset Schedule (Exhibit A to Attachment 1), a copy of which is attached hereto, it has reviewed the Asset 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 Transaction Asset, and (iii) based on its examination, the foregoing documents on their face satisfy the requirements set forth in Paragraph 2 of the Bailee Agreement. Bailee hereby confirms that it is holding each such Asset File as agent and bailee for the exclusive use and benefit of Buyer 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: E-8 EX-10 3 ex10-2.txt EX. 10.2 Exhibit 10.2 ================================================================================ MASTER REPURCHASE AGREEMENT FOR A REPURCHASE FACILITY IN AN AMOUNT UP TO $75,000,000 Dated as of July 29, 2005 among CAPITAL TRUST, INC., CT RE CDO 2004-1 SUB, LLC and CT RE CDO 2005-1 SUB, LLC as Sellers MORGAN STANLEY BANK, as Buyer ================================================================================ -iii-
TABLE OF CONTENTS Page RECITALS.........................................................................................................1 Section 1. Applicability..................................................................................1 Section 2. Definitions and Accounting Matters.............................................................1 2.01. Certain Defined Terms..........................................................................1 2.02. Accounting Terms and Determinations...........................................................16 Section 3. Transactions, Note and Prepayments............................................................16 3.01. Transactions..................................................................................16 3.02. Confirmations.................................................................................16 3.03. Procedures for Transactions...................................................................17 3.04. Margin Maintenance............................................................................22 Section 4. Payments; Computations; Etc...................................................................23 4.01. Repurchase of Transaction Assets; Periodic Advance Repurchase Payments........................23 4.02. Payments......................................................................................24 4.03. Computations..................................................................................25 4.04. [Intentionally Omitted.]......................................................................25 4.05. Booking of Transactions.......................................................................25 4.06. Buyer's Funding of Eurodollar Rate Transactions...............................................25 4.07. Income Payments...............................................................................25 4.08. Compensation for Increased Costs..............................................................25 4.09. Limitation on Types of Transactions; Illegality...............................................26 Section 5. Precautionary Collateral Security.............................................................27 5.01. Transaction Assets; Precautionary Security Interest...........................................27 5.02. Further Assurances............................................................................28 5.03. Changes in Locations, Name, etc...............................................................28 5.04. Buyer's Appointment as Attorney-in-Fact.......................................................28 5.05. Performance by Buyer of Seller's Obligations..................................................29 5.06. Proceeds......................................................................................30 5.07. Remedies......................................................................................30 5.08. Limitation on Duties Regarding Preservation of Transaction Asset Items........................31 5.09. Powers Coupled with an Interest...............................................................31 5.10. Release of Security Interest..................................................................31 5.11. Release of Transaction Assets.................................................................31 -i- TABLE OF CONTENTS (continued) Page 5.12. Substitution of Eligible Transaction Assets...................................................31 Section 6. Conditions Precedent..........................................................................32 6.01. Initial Transaction...........................................................................32 6.02. Initial and Subsequent Transactions...........................................................32 6.03. Additional Requirements.......................................................................34 Section 7. Representations and Warranties................................................................35 7.01. Existence.....................................................................................35 7.02. Action........................................................................................35 7.03. Litigation....................................................................................35 7.04. No Breach.....................................................................................35 7.05. Approvals.....................................................................................35 7.06. Use of Proceeds; Margin Regulations...........................................................36 7.07. Taxes.........................................................................................36 7.08. Investment Company Act........................................................................36 7.09. Transaction Assets; Transfer of Ownership and Precautionary Collateral Security...............36 7.10. Chief Executive Office........................................................................37 7.11. Location of Books and Records.................................................................37 7.12. True and Complete Disclosure..................................................................37 7.13. ERISA.........................................................................................38 Section 8. Covenants of Sellers..........................................................................38 8.01. Financial Statements, Reports, etc............................................................38 8.02. Litigation....................................................................................39 8.03. Existence, etc................................................................................39 8.04. Prohibition of Fundamental Changes............................................................40 8.05. Aggregate Margin Maintenance Asset Value Deficiency...........................................40 8.06. Notices.......................................................................................40 8.07. Reports.......................................................................................40 8.08. Transactions with Affiliates..................................................................41 8.09. Foreclosure or Other Remediation by Seller....................................................41 8.10. Limitation on Liens...........................................................................41 8.11. Limitation on Distributions...................................................................41 8.12. Maintenance of Ratio of Earnings Before Interest, Taxes, Depreciation and Amortization to Interest and Preferred Dividends...........................................................41 -ii- TABLE OF CONTENTS (continued) Page 8.13. Maintenance of Ratio of Total Indebtedness to Tangible Net Worth..............................41 8.14. Servicer; Servicing Tape......................................................................41 8.15. Remittance of Prepayments.....................................................................42 Section 9. Events of Default.............................................................................42 Section 10. Remedies Upon Default.........................................................................44 Section 11. No Duty of Buyer..............................................................................44 Section 12. Miscellaneous.................................................................................44 12.01. Waiver........................................................................................44 12.02. Notices.......................................................................................44 12.03. Indemnification and Expenses..................................................................45 12.04. Amendments....................................................................................45 12.05. Successors and Assigns........................................................................46 12.06. Survival......................................................................................46 12.07. Captions......................................................................................46 12.08. Counterparts..................................................................................46 12.09. Agreement Constitutes Security Agreement; Governing Law.......................................46 12.10. Submission to Jurisdiction; Waivers...........................................................46 12.11. Waiver of Jury Trial..........................................................................47 12.12. Acknowledgments...............................................................................47 12.13. Hypothecation or Pledge of Transactions.......................................................47 12.14. Servicing.....................................................................................47 12.15. Periodic Due Diligence Review.................................................................48 12.16. Intent........................................................................................49 12.17. Change of any Seller's State of Formation.....................................................49 12.18. Set-Off.......................................................................................49 12.19. Joint and Several Liability...................................................................50 12.20. Reimbursement of Structuring Fee..............................................................50
-iii- TABLE OF CONTENTS (continued) SCHEDULES - --------- SCHEDULE 1 Filing Jurisdictions and Offices SCHEDULE 2 Approved Appraisers SCHEDULE 3 Approved Engineers SCHEDULE 4 Approved Environmental Consultants SCHEDULE 5 Organizational Structure Chart of Seller EXHIBITS - -------- EXHIBIT A Form of Confirmation EXHIBIT B Form of Custodial Agreement EXHIBIT C [Intentionally Omitted] EXHIBIT D-1 Form of Existing Lender's Release Letter EXHIBIT D-2 Form of Seller's Release Letter EXHIBIT E Form of Bailee Agreement -iv- MASTER REPURCHASE AGREEMENT (as the same may be amended, supplemented or otherwise modified from time to time, this "Agreement"), dated as of July 29, 2005, among CAPITAL TRUST, INC., a Maryland corporation ("CT"), CT RE CDO 2004-1 SUB, LLC, a Delaware limited liability company, and CT RE CDO 2005-1 SUB, LLC, a Delaware limited liability company (each a "Seller" and, collectively, "Sellers"), and MORGAN STANLEY BANK, a Utah industrial bank ("Buyer"). RECITALS WHEREAS, Sellers have requested that Buyer from time to time purchase Transaction Assets (as defined below) owned by any of the Sellers, and Buyer is prepared to enter into such Transactions (as defined below) upon the terms and conditions hereof. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1 Applicability. From time to time, the parties hereto may enter into transactions in which a Seller agrees to transfer to Buyer certain Eligible Transaction Assets (as defined below) owned by such Seller against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to such Seller such Eligible Transaction Assets at a date certain or on demand, against the transfer of funds by such Seller. Each such transaction shall be referred to as a "Transaction" and, unless otherwise agreed in writing, shall be governed by this Agreement. Section 2 Definitions and Accounting Matters. 2.01. Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 2.01 or in other provisions of this Agreement in the singular will have the same meanings when used in the plural and vice versa): "Affiliate" shall mean (i) with respect to Buyer, any entity which controls, is controlled by, or is under common control with Buyer, and (ii) with respect to each Seller, any affiliate of such Seller as such term is defined in the Bankruptcy Code. "Aggregate Margin Maintenance Asset Value" shall mean the aggregate Margin Maintenance Asset Value of all Eligible Transaction Assets subject to all Transactions outstanding under this Agreement. "Aggregate Margin Maintenance Asset Value Deficiency" shall have the meaning provided in Section 3.04 hereof. "Agreement" shall have the meaning provided in the heading hereto. "Appraisal" means an appraisal of any Property prepared by a licensed appraiser listed on Schedule 2 attached hereto, as such schedule may be amended from time to time by Buyer or the applicable Seller 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. 1 "Asset File" shall mean, as to each Transaction Asset, those documents set forth in a schedule to be delivered by the relevant Seller to Custodian and which are delivered to the Custodian pursuant to the terms of this Agreement or the Custodial Agreement including, without limitation, all documents required by Buyer to transfer a valid ownership to Buyer and to grant and perfect a precautionary first priority security interest in such Transaction Asset. "Asset-Specific Transaction Balance" means a portion of the Purchase Price of the Transactions allocable to a specific Transaction Asset. Such portion initially consists of the sum of all Purchase Price payments with respect to the Transaction entered into on account of such Transaction Asset, without subtracting from such Purchase Price payments Buyer's Transaction Costs and other costs and fees to the extent advanced to Sellers hereunder. Wherever this Agreement states that Repurchase Price prepayments on account of the Transaction are to be allocated or applied to or against the Asset-Specific Transaction Balance of a specific Eligible Transaction Asset, the Asset-Specific Transaction Balance of such Transaction Asset shall be deemed reduced accordingly by the amount of the Repurchase Price prepayments so applied. "Asset Value" shall mean, as of any date in respect of any Eligible Transaction Asset, the price at which such Eligible Transaction Assets could readily be sold as determined in the sole good faith of Buyer, which price may be determined to be zero, provided that, so long as no Event of Default shall have occurred and be continuing, the Asset Value of the Eligible Transaction Asset shall be reduced or increased, as the case may be, by the aggregate net Hedge Value in respect of any Interest Rate Protection Agreements as to which Buyer has a perfected security interest in all of the relevant Seller's right, title and interest therein; provided, further, that the Asset Value, without giving effect to such increase, shall in no event exceed one hundred percent (100%) of the outstanding principal balance of the related Eligible Transaction Asset. Buyer'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 Agreement, the relevant Seller shall cooperate with Buyer in its determination of the Asset Value of each Eligible Transaction Asset (including, without limitation, providing all information and documentation in the possession of such Seller regarding such Eligible Transaction Asset or otherwise required by Buyer in its sole good faith business discretion). "B Note" shall mean the original executed subordinated promissory note or other evidence (including a participation certificate and/or participation agreement) of a subordinated participation interest owned by a Seller with respect to a Subordinate Mortgage Loan, Whole Loan or Mezzanine Loan. "Bailee" shall mean Paul, Hastings, Janofsky & Walker LLP or such other third party as Buyer may approve. "Bailee Agreement" shall mean the Bailee Agreement among the relevant Seller, Buyer and Bailee in the form of Exhibit E 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. 2 "Base Rate" means, as determined by Buyer on a daily basis, the lesser of (a) the rate per annum established by JPMorgan Chase from time to time as its "Prime" Rate or "reference" rate (which the relevant Seller acknowledges 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 Buyer in its sole discretion. "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. "Buyer" shall have the meaning provided in the heading hereto. "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 Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CDO Note" shall mean any of the Class F Notes, Class G Notes or Class H Notes or any other note issued by a collateralized debt obligation transaction managed or sponsored by Capital Trust, Inc. or any of its Affiliates. "Class F Note" shall mean a Class F Note issued by Capital Trust RE CDO 2004-1 Ltd. or Capital Trust RE CDO 2005-1 Ltd. "Class G Note" shall mean a Class G Note issued by Capital Trust RE CDO 2004-1 Ltd. or Capital Trust RE CDO 2005-1 Ltd. "Class H Note" shall mean a Class H Note issued by Capital Trust RE CDO 2004-1 Ltd. or Capital Trust RE CDO 2005-1 Ltd. "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. "Collection Account" shall mean one or more accounts established by the Servicer subject to a security interest in favor of Buyer, into which all Collections shall be deposited by the Servicer. "Collections" shall mean all collections and proceeds on or in respect of any Transaction Asset, excluding collections required to be paid to the Servicer or a Transaction Asset Obligor on the Transaction Asset. "Confirmation" shall have the meaning provided in Section 3.02(a) hereof. "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. 3 "Custodial Agreement" shall mean the Custodial Agreement, dated as of the date hereof, among Sellers, Custodian and Buyer, 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 relevant Seller in connection with the sale of Eligible Transaction Assets to Buyer in the form of Annex 3 to the Custodial Agreement. "Custodian" shall mean Deutsche Bank National Trust Company 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. "Dollars" and "$" shall mean lawful money of the United States of America. "Due Diligence Review" shall mean the performance by Buyer of any or all of the reviews permitted under Section 12.15 hereof with respect to any or all of the Transaction Asset, as desired by Buyer from time to time. "Effective Date" shall mean the date upon which the conditions precedent set forth in Section 6.01 shall have been satisfied. "Eligible Transaction Assets" shall mean Subordinate Mortgage Loans, Whole Loans, Mezzanine Loans, B Notes, Preferred Equity Interests, CMBS, participation interests in any of the foregoing, CDO Notes and Other Approved Assets as to which the representations and warranties in Section 7.09 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. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "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 a Seller 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 a Seller is a member. "Eurocurrency Reserve Requirements" shall mean, for any day as applied to a Transaction, 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. 4 "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 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 Buyer 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 Transaction Asset, a period of thirty (30) days 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 15th day of each month, or, if such 15th day is not a Business Day, the Business Day immediately prior to such day; and (c) the initial Eurodollar Contract Period with respect to each Asset-Specific Transaction Balance shall commence on the related Purchase 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 Eurodollar Contract Period pertaining to a Transaction, a rate per annum determined by Buyer 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 Buyer shall be conclusive absent manifest error by Buyer: Eurodollar Base Rate ------------------------------------ 1.00 minus Eurocurrency Reserve Requirements "Eurodollar Rate Spread" means as to each Purchase Rate the applicable Eurodollar Rate Spread set forth below opposite such Purchase Rate for the applicable Transaction Asset Type, or such other Eurodollar Rate Spread as may be mutually agreed to by Seller and Buyer: 5
Eurodollar Rate Spread (expressed as percentage points Transaction Asset Type Purchase Rate per annum and as basis points) - ---------------------- ------------- ------------------------------ - ----------------------------------------------------------------------------------------------------------- Whole Loans [****] [****] [****] - ----------------------------------------------------------------------------------------------------------- B Notes, Preferred Equity Interests and Mezzanine [****] [****] [****] Loans and participation interests in any of the foregoing* ---------------------------------------------------- (50% - 55% LTV maximum) [****] [****] [****] ---------------------------------------------------- (56% - 60% LTV maximum) [****] [****] [****] ---------------------------------------------------- (61% - 70% LTV maximum) [****] [****] [****] ---------------------------------------------------- (71% - 75% LTV maximum) [****] [****] [****] - ----------------------------------------------------------------------------------------------------------- (76% - 80% LTV maximum) [****] [****] [****] ---------------------------------------------------- (81% - 85% LTV maximum) [****] [****] [****] ---------------------------------------------------- (86% - 90% LTV maximum) [****] [****] [****] - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- CMBS [****] [****] [****] Rating: [****] [****] [****] ---------------------------------------------------- BBB [****] [****] [****] ---------------------------------------------------- BBB- [****] [****] [****] ----------------- ----------------- ---------------- BB+ [****] [****] [****] ---------------------------------------------------- BB [****] [****] [****] ---------------------------------------------------- BB- [****] [****] [****] - ----------------------------------------------------------------------------------------------------------- B+ [****] [****] [****] ---------------------------------------------------- B [****] [****] [****] ---------------------------------------------------- B- [****] [****] [****] ---------------------------------------------------- Unrated [****] [****] [****] - ----------------------------------------------------------------------------------------------------------- Class F Notes [****] [****] [****] - ----------------------------------------------------------------------------------------------------------- Class G Notes [****] [****] [****] - ----------------------------------------------------------------------------------------------------------- Class H Notes [****] [****] [****] - ----------------------------------------------------------------------------------------------------------- Other CDO Notes [****] [****] [****] - -----------------------------------------------------------------------------------------------------------
* B Notes, Preferred Equity Interests and Mezzanine Loans and participations in any of the foregoing, in each case relating to hotel and other hospitality properties shall have a maximum LTV as determined by the Buyer in its sole discretion. "Eurodollar Substitute Rate" means a rate of interest equal to (a) the Base Rate minus (b) one percent (1%) per annum (100 basis points). "Event of Default" shall have the meaning provided in Section 9 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 quotations for the day of such transactions received by Buyer from three federal funds brokers of recognized standing selected by Buyer. "GAAP" shall mean tax basis accounting accrual method with amortizing expense modifications according to generally accepted accounting principles consistently applied. No other modifications to the cash basis accounting methodology shall be permitted except with the prior written approval of Buyer in its sole and absolute discretion. ____________________________ ****Material omitted pursuant to a request for confidential treatment under Rule 24b-2. Material filed separately with the Securities Exchange Commission. 6 "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, the relevant Seller, any of its 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 an Underlying Property, to the extent required by Buyer. 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. "Income" shall mean, with respect to any Transaction Asset at any time, any principal thereof and all interest, dividends or other distributions thereon. "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 ninety (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; provided that indebtedness that is non-recourse to such Person shall not be included in Indebtedness . "Installment Date" shall have the meaning set forth in Section 4.01(a) hereof. "Interest Rate Protection Agreement" shall mean, with respect to any or all of the Subordinate Mortgage Loans, CMBS, Whole Loans and Mezzanine Loans, any short sale of U.S. 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 the relevant Seller (specifically with respect to such Transaction Asset) and acceptable to Buyer. "Late Fee" shall have the meaning set forth in Section 4.01(b) hereof. 7 "Late Fee Rate" shall mean, in respect of any Repurchase Price amount of any Transaction or any other amount under this Agreement, that is not paid when due to Buyer (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. "Lien" shall mean any mortgage, lien, pledge, charge, encumbrance, security interest or adverse claim. "Loan Asset" shall mean, as applicable, a Subordinate Mortgage Loan, Whole Loan or a Mezzanine Loan. "Loan-to-Value Ratio" or "LTV" shall mean, as to any Eligible Transaction Asset or Transaction Asset, as applicable, the ratio that (x) the aggregate (or individual) outstanding principal balances of any or all senior and pari passu loans and preferred equity interests secured in whole or in part by real property or direct or indirect beneficial interests therein relating to such Eligible Transaction Asset bears to (y) the value, determined by an Appraisal reasonably acceptable to Buyer, 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 Transaction Asset. "Margin Maintenance Asset Value" shall mean, with respect to Eligible Transaction Assets, the Asset Value of such Eligible Transaction Assets multiplied by the applicable Purchase Rate set forth in the definition of "Eurodollar Rate Spread" set forth herein or as otherwise defined or limited herein; provided that Margin Maintenance Asset Value may be deemed to be zero (or such greater amount as determined by Buyer in its sole discretion) with respect to each Eligible Transaction Asset (1) in respect of which there is a breach of a representation and warranty by a Transaction Asset 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 thirty (30) days (such period to include any applicable grace periods) unless otherwise approved by Buyer, (3) which has been released from the possession of the Custodian under the Custodial Agreement for a period in excess of that permitted under the Custodial Agreement, or (4) which exceeds the limitations on Margin Maintenance Asset Value set forth in the definition thereof. "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition or prospects of a Seller taken as a whole, (b) the ability of a 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 principal of or interest on the Transactions or other amounts payable in connection therewith or (f) the aggregate value of the Transaction Asset. "Maximum Purchase Amount" shall mean Seventy Five Million Dollars ($75,000,000); provided that if Sellers elect to reduce the Maximum Purchase Amount hereunder, any subsequent increase in the Maximum Purchase Amount following such reduction shall be within the sole discretion of Buyer. "Maximum Purchase Rate" shall mean, as to Eligible Transaction Asset, the maximum Purchase Rate that shall be determined by Buyer in Buyer's sole and absolute discretion; provided that, with respect to the specific categories of Eligible Transaction Assets referred to in the definition of Eurodollar Rate Spread, the Maximum Purchase Rate shall not exceed the respective Purchase Rates set forth in such definition. 8 "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. "Monthly Statement" shall mean, for each calendar month during which this Agreement shall be in effect, each Seller's reconciliation in arrears of beginning balances, interest, principal, paid-to-date and ending balances for each Transaction Asset, together with (a) a written report of any developments or events that are reasonably likely to have a Material Adverse Effect, (b) a written report of any and all written modifications to any documents underlying any Transaction Asset and (c) such other internally prepared reports as mutually agreed by each Seller and Buyer which reconciliation, Officer's Certificate and reports shall be delivered to Buyer for each calendar month during the term of this 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 Note" shall mean the original executed promissory note or other evidence of the indebtedness of a mortgagor with respect to a Subordinate Mortgage Loan or Whole Loan, as applicable. "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 Transaction Asset 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 Seller to Buyer or any Affiliate of Buyer including, without limitation, under this Agreement or any repurchase, loan or other agreement between Buyer, or an Affiliate of Buyer, and any of the Sellers. "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 a Seller or any ERISA Affiliate and that is covered by Title IV of ERISA. "Officer's Certificate" shall mean the certificate of a Responsible Officer as set forth in Section 6.02(b) hereof. "Other Approved Assets" shall mean such Transaction Assets as approved on a case-by-case basis by Buyer in its sole discretion. "Periodic Advance Repurchase Payments" shall have the meaning set forth in Section 4.01(b) hereof. "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). 9 "Plan" shall mean an employee benefit or other plan established or maintained by a Seller or any ERISA Affiliate during the five-year period ended immediately before the date of this Agreement or to which a Seller or any ERISA Affiliate makes, is obligated to make or has, within the five-year period before the date of this 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. "Preferred Equity Interest" shall mean any interest in a Person constituting a preferred share of stock or a preferred partnership or membership interest or other preferred right or interest in a Person that is not characterized as indebtedness under GAAP. "Preliminary Due Diligence Package" means with respect to any proposed Transaction Asset, the following due diligence information relating to such proposed Transaction Asset to be provided by the relevant Seller to Buyer pursuant to this 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 Transaction Asset); (v) indicative debt service coverage ratios; (vi) indicative Loan-to-Value Ratio; (vii) such Seller'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; (c) seismic reports; and (d) operations and maintenance plan with respect to asbestos-containing materials; (xi) in the case of a B Note, Mezzanine Loan or Preferred Equity Interest, all information which would otherwise be provided for the underlying Loan Asset, 10 and in addition, all documentation evidencing or otherwise relating to the B Note, Mezzanine Loan or Preferred Equity Interest, including, without limitation, intercreditor agreements, participation agreements, and shareholder agreements, as applicable; (xii) in the case of CMBS, (a) a copy of the applicable pooling and servicing agreement, trust agreement, participation agreement or similar document governing the issuance and administration of the CMBS; (b) a copy of any new issue asset summary books; (c) copy of the applicable prospectus or offering memorandum; (d) to the extent that the CMBS is certificated, an original of the relevant certificate duly endorsed in blank to Buyer; (e) to the extent that the CMBS is not certificated, all documents requested by Buyer to confirm that the CMBS is being held in a security account under the control of Buyer, or such other evidence of confirmation of the sale to Buyer as Buyer shall require; (f) a copy of the documents specified above relating to, directly or indirectly, the subject Transaction Asset, to the extent obtained by the originating lender and available to the relevant Seller; and (g) a copy of any other agreement or instrument evidencing or otherwise governing the CMBS; (xiii) analyses and reports with respect to such other matters concerning the Transaction Asset as Buyer may in its sole discretion require; (xiv) documents comprising such Transaction Asset, or current drafts thereof, including, without limitation, underlying debt and security documents, intercreditor agreements, participation agreements, shareholder agreements, guaranties, underlying borrower's organizational documents, warrant agreements, and loan and collateral pledge agreements, as applicable; and (xv) a list that specifically and expressly identifies any Transaction Asset Documents that relate to such Transaction Asset but are not in Seller's possession. "Price Differential" shall mean, with respect to any Transaction hereunder as of any date, the aggregate amount obtained by daily application of the applicable Pricing Rate in effect from time to time for such Transaction to the Purchase Price for such Transaction on each day during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the Repurchase Date (reduced by any amount of such Price Differential previously paid by the relevant Seller to Buyer with respect to such Transaction, including any amounts paid in respect of such Price Differential pursuant to Section 3.04 or any other partial repayments). "Pricing Rate" shall have the meaning provided in Section 4.01(b) hereof. "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. "Purchase Date" shall mean, with respect to an Eligible Transaction Asset, the date on which such Eligible Transaction Asset is transferred by the relevant Seller to Buyer, or its designee. "Purchase Documents" means this Agreement, the related Confirmation and all other agreements, instruments, certificates and documents delivered by or on behalf of the relevant Seller to evidence the Transaction(s) or otherwise in satisfaction of the requirements of this Agreement, or the other documents listed above as same may be amended or modified from time to time. 11 "Purchase Period" shall mean the period commencing on the date hereof and expiring on, and excluding, July 29, 2007, as the same may be extended pursuant to Section 4.01(a) hereof. "Purchase Price" means the price at which Transaction Assets are transferred by Seller to Buyer, or its designee, as specified in the related Confirmation. "Purchase Rate" means, for any Eligible Transaction Asset, 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. "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. "Repurchase Date" shall mean, with respect to a Transaction, the date on which the relevant Seller is to repurchase the related Transaction Assets from Buyer, which date, unless otherwise specified in the related Confirmation, shall be the Termination Date. "Repurchase Obligations" shall have the meaning provided in Section 5.01(a) hereof. "Repurchase Period" shall mean, if the Termination Date shall not be extended in accordance with the terms hereof, the period from and after July 29, 2007 through and including July 29, 2008; provided, however, that if the Purchase Period is extended in accordance with the terms hereof, "Repurchase Period" shall mean the period commencing on the day immediately following the day on of the expiration of the Purchase Period and expiring on the first anniversary of the date of its commencement. "Repurchase Price" shall mean the price at which a Transaction Asset is to be transferred from Buyer, or its designee, to the relevant Seller upon termination of the related Transaction, which will be determined in each case (including Transactions terminable upon demand) as the sum of (i) the Purchase Price and (ii) the Price Differential, in each case as of the date of such determination, decreased by all cash, Income and Periodic Advance Repurchase Payments (including Late Fees, if any) actually received by Buyer. "Responsible Officer" shall mean, as to any Person, the chief executive officer, chairman, the chief operating officer and the chief financial officer of such Person. "Seller" and "Sellers" shall have the meanings provided in the heading hereof. "Servicer" shall have the meaning provided in Section 12.14(c) hereof. "Servicing Agreement" shall have the meaning provided in Section 12.14(c) hereof. "Servicing Records" shall have the meaning provided in Section 12.14(b) hereof. "Structuring Fee" shall mean fee in an amount equal to [****] ____________________________ **** Material omitted pursuant to a request for confidential treatment under Rule 24b-2. Material filed separately with the Securities Exchange Commission. 12 "Subordinate Mortgage Loan" shall mean a performing mortgage loan secured by a second lien position and encumbering one or more commercial or multi-family residential properties which Custodian has been instructed to hold for Buyer pursuant to the Custodial Agreement, and which Subordinate 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 relevant Seller in and to the Mortgaged Property covered by such Mortgage. "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, solely for purposes of Section 9 hereof, a Subsidiary of CT shall only include a direct wholly-owned Subsidiary of CT. "Supplemental Due Diligence List" means, with respect to any proposed Transaction Asset, information or deliveries concerning such proposed Transaction Asset, such items 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 final LTV ratio computation and a final debt service coverage ratio computation for such proposed Transaction Asset. "Tangible Net Worth" shall mean, as of a particular date, (a) all amounts which would be included under capital of a Seller and its consolidated Subsidiaries on a balance sheet of a Seller and its consolidated Subsidiaries at such date, determined in accordance with GAAP, less (b) intangible assets of such Seller and its consolidated Subsidiaries. "Termination Date" shall mean July 29, 2008 or such earlier date on which this 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 29, 2008, the Termination Date may be extended pursuant to Section 4.01(a) of this Agreement. "Title Insurance Policy" shall mean, with respect to any real property underlying a Loan Asset, a mortgagee's title insurance policy or policies issued to Buyer and Buyer's successors and assigns (or, subject to the written approval of Buyer, an endorsement to the relevant Seller's title insurance policy insuring the assignment to Buyer of the applicable mortgage) by one or more title companies reasonably satisfactory to Buyer, which policy or policies shall be in form and substance reasonably acceptable to Buyer, with such endorsements as Buyer shall reasonably require and, with respect to any Loan Asset, a mortgagee's title insurance policy or policies issued to Buyer and Buyer's successors and/or assigns by one or more title companies reasonably satisfactory to Buyer reflecting Buyer's interest in such Loan Asset. "Total Indebtedness" shall mean, for any period, the aggregate Indebtedness of Seller and its consolidated Subsidiaries during such period less the amount of any nonspecific balance sheet reserves maintained in accordance with GAAP. 13 "Transaction" shall have the meaning provided in Section 1 hereof. "Transaction Asset" shall mean any Eligible Transaction Asset which has been sold by the relevant Seller to Buyer in a Transaction hereunder, but which has not been repurchased by such Seller. The term "Transaction Asset" shall include any additional asset delivered pursuant to Section 3.04 hereof. "Transaction Asset Documents" shall mean with respect to any Transaction Asset, the documents comprising the Asset File for such Transaction Asset. "Transaction Asset Items" shall have the meaning provided in Section 5.01(b) hereof. "Transaction Asset Note" shall mean the original executed Mortgage Note in respect of a Subordinate Mortgage Loan or Whole Loan or such other promissory note or other evidence of the indebtedness of a Transaction Asset Obligor with respect to a Mezzanine Loan or B Note. "Transaction Asset Obligor" shall mean any obligor under any Eligible Transaction Asset or Transaction Asset, as applicable, any issuer of any security comprising any portion of the Transaction Asset and any entity in which an Equity Interest comprises any portion of such Eligible Transaction Asset or Transaction Asset. "Transaction Asset Schedule" shall mean a list of Eligible Transaction Assets to be sold in a Transaction hereunder, attached to a Custodial Identification Certificate setting forth, as to each Eligible Transaction Asset, the applicable information for such Transaction Asset Type specified on Annex 1 to the Custodial Agreement. "Transaction Asset Schedule and Exception Report" shall mean the Transaction Asset schedule and exception report prepared by Custodian pursuant to the Custodial Agreement. "Transaction Asset Type" shall mean a Subordinate Mortgage Loan, Whole Loan, Mezzanine Loan, B Note, Preferred Equity Interest, CMBS, participation interest in any of the foregoing, CDO Note and Other Approved Asset. "Transaction Costs" shall mean, with respect to any Transaction, all actual out-of-pocket reasonable costs and expenses paid or incurred by Buyer and payable by the relevant Seller relating to the making of such Transaction (including legal fees and other fees described in Section 12.03 hereof). Transaction Costs shall not include costs incurred by Buyer for overhead and general administrative expenses. "Transaction Documents" shall mean, collectively, this Agreement, the related Confirmations, the Servicing Agreement and the Custodial Agreement. "Trust Receipt" shall mean the receipt delivered by Custodian pursuant to the provisions of Section 4 of the Custodial Agreement acknowledging receipt of a Asset File in connection with a Transaction hereunder in the form of Annex 2 to the Custodial Agreement. "Underlying Property" means any Property owned by a direct or indirect issuer of (a) Equity Interests that have been pledged to the relevant Seller as collateral for a Mezzanine Loan or (b) a Preferred Equity Interest. "Underwriting Issues" means with respect to any Transaction Asset as to which the relevant Seller intends to request a Transaction, all information that has come to such Seller's attention, based on the making of reasonable inquiries and the exercise of reasonable care and diligence under the 14 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 Transaction Asset Document(s)), to a reasonable institutional lender in determining whether to originate or acquire the Transaction Asset 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 ownership interest or security interest in any Transaction Asset is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform 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. "Whole Loan" shall mean a mortgage loan secured by a first mortgage lien on the Mortgaged Property encumbered thereby and satisfying in all respects (other than lien priority) the definition of a Subordinate Mortgage Loan as defined herein. 2.02. 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 Buyer hereunder shall be prepared, in accordance with GAAP. Section 3. Transactions, Note and Prepayments. 3.01. Transactions. (a) Buyer agrees to enter from time to time upon the relevant Seller's request, on a committed basis and on the terms and conditions of this Agreement, into Transactions with such Seller, to be funded in Dollars, during the Purchase Period (but not during the Repurchase Period), in an aggregate Purchase Price at any one time outstanding up to but not exceeding the Maximum Purchase Amount as in effect from time to time. Nothing in this Agreement shall be interpreted as a commitment by Buyer to enter into any Transaction, but rather sets forth the procedures to be used in connection with periodic requests for Transactions and the conditions to the entering into any Transactions. Sellers hereby acknowledge that Buyer is under no obligation to agree to enter into, or to enter into, any Transaction pursuant to this Agreement. (b) Subject to the terms and conditions of this Agreement, during the term of this Agreement, the relevant Seller may sell (in whole or in part), repurchase (in whole or in part) and resell (in whole or in part) Transaction Assets hereunder. 3.02. Confirmations (a) At the time specified in Section 3.03(d), the relevant Seller shall execute and deliver to Buyer a confirmation of the related Transaction, substantially in the form attached as Exhibit A hereto (a "Confirmation"). The Confirmation shall specify any additional terms or conditions of the Transaction agreed to by Buyer and not inconsistent with this Agreement. Each Confirmation, together with this Agreement, shall constitute conclusive evidence of the terms agreed between Buyer and the relevant Seller with respect to the Transaction to which the Confirmation relates, and Buyer's payment of the Purchase Price and such Seller's acceptance of the Purchase Price shall constitute the parties' agreement to the terms of such Confirmation. It is the intention of the parties that each Confirmation shall not be separate from this Agreement but shall be made a part of this Agreement. In the event that any terms or conditions of any Confirmation are inconsistent, or in direct conflict, with this Agreement, the terms of 15 this Agreement shall prevail; provided that the Confirmation and this Agreement shall be construed to be cumulative to the extent possible. (b) The date, Repurchase Price and Purchase Rate of each Transaction entered into by Buyer and the relevant Seller, and each payment made on account of the Repurchase Price thereof, shall be recorded by Buyer from time to time on its internal books and records (whether electronic or otherwise). Failure of Buyer to make such notation shall not affect the obligations of such Seller to make a payment when due of any amount owing hereunder in respect of the Transactions. Sellers agree that Buyer's books and records showing the MS Indebtedness pursuant to this Agreement and the other Transaction 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 Confirmation or other instrument. Buyer will provide to each Seller a monthly statement of Transactions, payments, and other transactions pursuant to this Agreement. Failure by Buyer to provide such monthly statement shall not affect the obligations of Sellers to make a payment when due of any amount owing hereunder in respect of the Transactions. Such statement shall be deemed correct, accurate, and binding on the relevant Seller absent manifest error. 3.03. Procedures for Transactions. (a) Preliminary Approval of Proposed Transaction Asset. (i) Each Seller may, from time to time, submit to Buyer a Preliminary Due Diligence Package for Buyer's review and approval in order to request a Transaction hereunder with respect to any proposed Transaction Asset that such Seller proposes to sell to Buyer and to be included in the Aggregate Margin Maintenance Asset Value in connection with such Transaction. (ii) Upon Buyer's receipt of a complete Preliminary Due Diligence Package, Buyer within two (2) Business Days shall have the right to request, in Buyer's sole and absolute discretion, additional diligence materials and deliveries that Buyer shall specify on a Supplemental Due Diligence List. Upon Buyer's receipt of all of the Diligence Materials or Buyer's waiver thereof, Buyer, within five (5) Business Days, shall either (A) notify the relevant Seller of the Maximum Purchase Rate (which may be less than the Purchase Rate set forth in the definition of Eurodollar Rate Spread) and the Asset Value for the proposed Transaction Asset or (B) deny, in Buyer's sole and absolute discretion, the relevant Seller's request for a Transaction. Buyer's failure to respond to a Seller within five (5) Business Days following receipt of all Diligence Materials or Buyer's written waiver thereof shall be deemed to be a denial of such Seller's request for a Transaction, unless Buyer and such Seller have agreed otherwise in writing. Nothing in this Section 3.03(a)(ii) or elsewhere in this Agreement shall, or be deemed to, prohibit Buyer 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 Sellers under this Agreement. (b) Final Approval of Proposed Transaction Asset. Upon Buyer's notification to a Seller of the Maximum Purchase Rate and the Asset Value for any proposed Transaction Asset, such Seller shall, if such Seller desires to obtain one or more Purchase Price payments with respect to such proposed Transaction Asset, satisfy the conditions (unless waived in writing by Buyer) set forth below (in addition to satisfying the conditions precedent to obtaining each Purchase Price payment, as set forth in Section 6 of this Agreement) as conditions precedent to Buyer's approval of such proposed Transaction Asset as an Eligible Transaction Asset, all in a manner, and pursuant to documentation, satisfactory in all respects to Buyer and its counsel: 16 (i) Environmental and Engineering. If applicable, Buyer shall have received an Environmental Report and an Engineering Report, each in form and substance satisfactory to Buyer, 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 Buyer in its reasonable discretion. (ii) Appraisal. If applicable, Buyer shall have received an Appraisal. (iii) Insurance. With respect to a Whole Loan, Subordinate Mortgage Loan or B Note encumbering real property, Buyer shall have received (to the extent available to the relevant Seller) 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 Transaction Asset Documents or the Purchase Documents. Such certificates or other evidence shall indicate that the relevant Seller will be named as an additional insured as its interest may appear (or shall run to the original lender's successors and assigns) 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 Transaction Asset Documents. (iv) Survey. With respect to a Loan Asset, a B Note, or a Preferred Equity Interest, to the extent obtained by a Seller from the Transaction Asset Obligor with respect to any Transaction Asset at the origination of the underlying loan or equity interest, as the case may be, relating thereto, Buyer shall have received with respect to proposed Transaction Asset that is real property, a current survey of such real property in a form satisfactory to Buyer. (v) 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 title reports and updates, as applicable, conducted by search firms and/or title companies acceptable to Buyer with respect to the Transaction Asset, the relevant Seller and the related underlying obligor, such searches to be conducted in each location Buyer shall reasonably designate. (vi) Title Insurance Policy. (A) With respect to a Whole Loan or Subordinate Mortgage Loan, the relevant Seller shall have delivered to Buyer (1) an unconditional commitment to issue title insurance policies in favor of Buyer and Buyer's successors and/or assigns with respect to such Seller's interest in the related real property with an amount of insurance that shall be not less than the related Asset-Specific Transaction Balance (taking into account the proposed Purchase Price) or such other amount as Buyer 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 Buyer and Buyer'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 Transaction Balance (taking into account the proposed Purchase Price) or such other amount of title coverage as Buyer shall require in its sole discretion. (B) With respect to a Mezzanine Loan, a B Note, a Preferred Equity Interest, CMBS, CDO Note or Other Approved Asset, the relevant 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 such Transaction Asset, 17 including, without limitation, a copy of a title insurance policy dated a date, and by a title insurer, in each case acceptable to Buyer in its sole discretion, showing that title is vested in the related Transaction Asset Obligor or in an entity in whom such Transaction Asset Obligor holds a beneficial interest. (vii) Purchase Documents. The relevant Seller shall have executed and delivered to Buyer, in form and substance satisfactory to Buyer and its counsel, all Purchase Documents conveying a valid ownership interest in the proposed Eligible Transaction Asset(s) to Buyer and perfecting a precautionary first priority security interest of Buyer in the proposed Eligible Transaction Asset(s) (and, in each case, in any Interest Rate Protection Agreements held by Seller with respect thereto) which shall be subject to no Liens except as expressly permitted by Buyer. Each of the Purchase Documents shall contain such representations and warranties concerning the proposed Transaction Asset and such other terms as shall be reasonably satisfactory to Buyer. (viii) Opinions of Counsel. Buyer shall have received from counsel to the relevant Seller its legal opinion as to enforceability of this Agreement and all documents executed and delivered hereunder in connection with such Transaction, (at Buyer's option) an opinion from local counsel where the applicable property is located and an opinion to, or for the benefit of, the relevant Seller 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 Buyer 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, or run to the benefit of, Buyer and its successors and assigns, and in a form and substance reasonably satisfactory to Buyer. (ix) Additional Real Estate Matters. To the extent obtained by the relevant Seller from the Transaction Asset Obligor relating to any Transaction Asset at the origination of the underlying loan or equity interest relating thereto, such Seller shall have delivered to Buyer such other real estate related certificates and documentation as may have been requested by Buyer, 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 Transaction Asset. (x) B Notes, Mezzanine Loans and Preferred Equity Interests. In the case of a B Note, Mezzanine Loan or Preferred Equity Interest, Buyer shall have received all documentation specified herein as if the underlying mortgage loan were the direct Transaction Asset and, in addition, all documentation evidencing or otherwise relating to the B Note, the Mezzanine Loan or the Preferred Equity Interest, as applicable. (xi) CMBS and CDO Notes. In the case of CMBS and CDO Notes, Buyer shall have received (a) a copy of the applicable pooling and servicing agreement, trust agreement, participation agreement or similar document governing the issuance and administration of the CMBS or CDO Notes, as the case may be; (b) a copy of any new issue asset summary books; (c) a copy of the applicable prospectus or offering memorandum; (d) to the extent that the CMBS or CDO Notes, as the case may be, are certificated, an original of the relevant certificate duly endorsed in blank to Buyer; (e) to the extent that the CMBS or CDO Notes, as the case may be, are not certificated, all documents requested by Buyer to confirm that the CMBS or CDO Notes, as the case may be, are being held in a security account under the control of Buyer, or such other evidence of confirmation of the sale to Buyer as Buyer shall require; (f) a copy of the documents 18 specified above relating to, directly or indirectly, the subject Transaction Asset, to the extent obtained by the originating lender and available to the relevant Seller; and (g) a copy of any other agreement or instrument evidencing or otherwise governing the CMBS or CDO Notes, as the case may be. (xii) Other Documents. Buyer shall have received such other documents as Buyer or its counsel shall request with respect to each or any Transaction Asset. (c) Transaction Asset Approval or Disapproval. Within two (2) Business Days following the date upon which the relevant Seller has tendered performance of the conditions enumerated in Sections 3.03(b)(i) through (xii), or has delivered such items or documents fully executed, if applicable, in final form, Buyer shall either (i) if the Transaction Asset Documents or the Purchase Documents with respect to the proposed Transaction Asset are not reasonably satisfactory in form and substance to Buyer, notify such Seller that Buyer has not approved the proposed Transaction Asset as Transaction Asset or (ii) notify such Seller and Bailee that Buyer has approved the proposed Transaction Asset as Transaction Asset and such notice shall identify the documents to be delivered to Custodian in connection with such proposed Transaction Asset pursuant to Section 3.03 and Section 6 of this Agreement and shall identify the party whom Buyer shall designate to record and/or file, as the case may be, any security documents necessary to convey a valid ownership interest to Buyer and to perfect Buyer's precautionary security interest in the Eligible Transaction Assets. The terms of delivery and filing and/or recordation of such security documents shall be set forth in a separate agreement between Buyer and its designee. Buyer's failure to respond to a Seller within two (2) Business Days shall be deemed to be a denial of Seller's request that Buyer approve the proposed Transaction Asset, unless Buyer and such Seller have agreed otherwise in writing. (d) Procedure for Purchase of Eligible Transaction Assets. Once Buyer has approved the Transaction Asset in accordance with Section 3.03(c) above, the relevant Seller may request a Transaction hereunder, on any Business Day during the Purchase Period, by delivering to Buyer, with a copy to Custodian, a Confirmation, which Confirmation must be received by Buyer prior to 12:00 p.m., New York City time, one (1) Business Day prior to the requested Purchase Date. Such Confirmation shall attach an Officer's Certificate signed by a Responsible Officer of the relevant Seller as required by Section 6.02(b) hereof. Contemporaneously with the delivery of the Confirmation, the relevant Seller shall deliver to Buyer with a copy to Custodian, a Custodial Identification Certificate along with the accompanying Transaction Asset Schedule with respect to all proposed Eligible Transaction Assets to be sold to Buyer on the applicable Purchase Date. (e) Delivery of Asset Files and Purchase Documents. "Non-Table Funded" Eligible Transaction Assets: By no later than 1:00 p.m., New York City time, one (1) Business Day prior to any Purchase Date, unless otherwise agreed by Buyer, the relevant Seller and/or the Bailee shall deliver to the Custodian as to any Eligible Transaction Asset on a case-by-case basis and to the extent applicable (i) original counterparts of (A) the Transaction Asset Note evidencing such Eligible Transaction Asset, including any power of attorney related to the execution thereof, together with any and all intervening endorsements thereon, endorsed, in blank, on its face or by allonge attached thereto (without recourse, representation or warranty, express or implied) (provided, an original note shall not be required for a Preferred Equity Interest or a B Note evidenced by a participation certificate or a non-certificated participation interest rather than a Transaction Asset Note), (B) any participation certificate or share certificate relating to the Eligible Transaction Asset together with any and all intervening endorsements thereon, endorsed, in blank, on its face or by 19 endorsement or stock power attached thereto (without recourse, representation or warranty, express or implied), (C) any participation agreement relating to uncertificated Eligible Transaction Asset that is not evidenced by a Transaction Asset Note (other than a Preferred Equity Interest), (D) an original executed assignment, in blank, in recordable form (except for the name of the assignee and any missing recording information), and otherwise in form and substance reasonably satisfactory to Buyer, of (x) the Mortgage, (y) any related assignment of leases and rents (if such item is a document separate from the Mortgage) and (z) any other recorded document relating to the Eligible Transaction Asset otherwise included in the Asset File, and (E) an original assignment of all unrecorded documents relating to the Eligible Transaction Asset (to the extent not already assigned pursuant to clause (D) above), in blank, and original counterparts or copies of all the Transaction Asset Documents comprising the Asset File, (ii) the security documents described in Section 3.03(b)(vii) above, and (iii) to the extent applicable, any other documents, reports or updated information as Buyer shall request pursuant to Section 3.03(b)(i)-(xii) and Section 6.03(b) not heretofore finally approved by Buyer. "Table Funded" Eligible Transaction Assets: 1) By no later than 1:00 p.m., New York City time, on the Purchase Date, Seller shall cause the Bailee to deliver to the Custodian and Buyer by facsimile or e-mail (i) as to each Eligible Transaction Asset, the original note, if applicable, evidencing the making of a loan secured by such Transaction Asset (provided, an original note shall not be required for a Preferred Equity Interest or a B Note evidenced by a participation certificate or a non-certificated participation interest rather than a Transaction Asset Note), and a fully executed Bailee Agreement and Bailee's Trust Receipt and Certification issued by the Bailee thereunder, and (ii) evidence satisfactory to Buyer that all documents necessary to perfect the relevant Seller's interest in the Eligible Transaction Assets have been delivered to a party acceptable to Buyer for recordation and filing. 2) By no later than 1:00 p.m., New York City time, on the third (3rd) Business Day following the applicable Purchase Date, the relevant Seller shall cause the Bailee to deliver to the Custodian the Asset File. (f) Custodial Identification Certificates and Trust Receipts. By no later than 12:00 p.m., New York City time, two (2) Business Days prior to any Purchase Date with respect to "Non-Table Funded" Eligible Transaction Assets and by no later than 12:00 p.m., New York City time, on each Purchase Date with respect to "Table Funded" Eligible Transaction Assets, the relevant Seller shall provide Buyer and Custodian with a final Custodial Identification Certificate and related Transaction Asset Schedule with respect to the Transaction Asset to be sold to Buyer on such Purchase Date, indicating any changes, if any, from the Custodial Identification Certificate and related Transaction Asset Schedule heretofore delivered to Buyer and Custodian pursuant to Section 3.03(d) above. With respect to "Table Funded" Eligible Transaction Assets, by 12:00 p.m. New York City time on each Purchase Date, Custodian shall provide to Buyer a proposed Transaction Asset Schedule for the applicable Eligible Transaction Assets. With respect to "Non-Table Funded" Eligible Transaction Assets, by no later than 1:00 p.m., New York City time, on the Purchase Date, Custodian shall deliver to the relevant Seller and Buyer a Trust Receipt with a Transaction Asset Schedule in respect of all of the Transaction Asset sold to Buyer on such Purchase Date. With respect to "Table Funded" Eligible Transaction Assets, by no later than 1:00 p.m. New York City time on the third (3rd) Business Day following the applicable Purchase Date, the Custodian shall deliver to Buyer a Trust Receipt with a Transaction Asset Schedule in respect of all of the Transaction Assets sold to Buyer on the applicable Purchase Date. 20 (g) If the relevant Seller shall deliver a Confirmation pursuant to Section 3.03(d) hereof and all conditions precedent set forth in Sections 3.03(a), 3.03(b), 3.03(c), 6.01 and 6.02 have been met, and provided no Default or Event of Default shall have occurred and be continuing, Buyer shall enter into a Transaction with the relevant Seller on the requested Purchase Date, with a Purchase Price in the amount so requested and approved by Buyer. (h) Subject to the timely receipt by Buyer of a Trust Receipt with a Transaction Asset Schedule as provided above, and subject further to the provisions of Section 6 hereof, such Purchase Price payment will then be made available to the relevant Seller by Buyer transferring, via wire transfer, to the following account of Seller: JPMorgan Chase Bank, 380 Madison Ave, 11th Floor, New York, NY 10017-2591, ABA #: 021-000021, Account #: 230254632, Account Name: Capital Trust, Inc., Attention: Geoffrey G. Jervis ((212)-655-0247), the aggregate Purchase Price amount of such Transaction in funds immediately available to the relevant Seller. Buyer may consider on a case-by-case basis in its sole, absolute discretion alternative funding arrangements requested by such Seller. (i) From time to time, the relevant Seller shall forward to Custodian additional original documents or additional documents evidencing any (i) assumption, modification, consolidation or extension of a Loan Asset, or (ii) any amendment to the operative documents with respect to an Equity Interest, in each case approved by Buyer in accordance with the terms of this Agreement, and upon receipt of any such other documents, the Custodian shall hold such other documents as Buyer 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 relevant Seller in time to permit their delivery hereunder at the time required, in lieu of delivering such original documents, such 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. The relevant Seller shall deliver such original documents to Custodian promptly when they are received. 3.04. Margin Maintenance. (a) Buyer may determine and re-determine the Aggregate Margin Maintenance Asset Value on any Business Day and on as many Business Days as it may elect. If at any time (i) the aggregate Purchase Price with respect to all Transaction Assets exceeds the Aggregate Margin Maintenance Asset Value (an "Aggregate Margin Maintenance Asset Value Deficiency"), as determined by Buyer in its sole discretion and notified to a Seller on any Business Day, or (ii) a Seller shall have received a prepayment of the principal of any loan or preferred equity interest comprising a portion of the Transaction Assets (including, without limitation, the payment of casualty or condemnation proceeds), a Seller 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 repurchase Transaction Assets at the Repurchase Price, make a prepayment in reduction of the Repurchase Price, or sell additional Transaction Asset(s) (which Transaction Asset(s) shall be in all respects acceptable to Buyer) to Buyer for no additional consideration, such that after giving effect to such repurchase, prepayment or sale, the aggregate Purchase Price with respect to all Transaction Assets does not exceed the Aggregate Margin Maintenance Asset Value as re-determined by Buyer after such repurchase, prepayment or sale. So long as no Default or Event of Default has occurred and is then continuing, all prepayments in reduction of the Repurchase Price shall be applied against the Asset-Specific Transaction Balance relating to the Transaction being repaid. (b) If at any time under any Transaction Asset Document evidencing Eligible Transaction Assets (x) there is an Event of Default, or event with which the giving of notice or lapse of 21 time or both would become an Event of Default, or (y) any representation or warranty made by or on behalf of the relevant Transaction Asset Obligor becomes false or misleading in any material respect or (z) the relevant Transaction Asset Obligor fails to perform or observe any material covenant or other obligation, Buyer may, in its sole discretion and without regard to any determination of the Asset Value of such Eligible Transaction Assets, notify the relevant Seller of such occurrence and may require by giving notice to such Seller that the relevant Eligible Transaction Asset be repurchased at the Repurchase Price or a prepayment in reduction of the Purchase Price be made, as determined by Buyer in its sole discretion. Not later than one (1) Business Day after the receipt of such notice, the relevant Seller shall prepay the Asset-Specific Transaction Balance related to such Eligible Transaction Asset. Buyer 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 6.02(b) or (ii) any representation of the relevant Seller set forth in Section 7.12 was true to such Seller's actual knowledge. Section 4. Payments; Computations; Etc. 4.01. Repurchase of Transaction Assets; Periodic Advance Repurchase Payments. (a) Sellers hereby promise to pay in full on the Termination Date the aggregate Repurchase Price with respect to all Transaction Assets then held by Buyer; provided, however, in the event the Purchase Period shall be extended pursuant to the terms hereof, Sellers promise to pay such aggregate Repurchase Price with respect to the Transaction Assets held by Buyer as of the expiration date of the Purchase Period in four (4) quarterly installments commencing on the first Business Day of the month immediately following the expiration of the Purchase Period and continuing on the first Business Day of each calendar quarter thereafter, with a final payment on the Termination Date, as extended (each, an "Installment Date") of an amount equal to the quotient of (x) the aggregate Repurchase Price of the Transaction Assets held by Buyer as of the expiration of the Purchase Period, divided by (y) four (4) (such schedule of payments, the "Repurchase Schedule"); provided, further, that in the event that a Seller shall make a Repurchase Price payment in excess of the Repurchase Price amount then due and payable in accordance with the Repurchase Schedule, the Repurchase Schedule shall be recalculated such that such Seller shall pay the Repurchase Price of the Transaction Assets held by Buyer as of the date of such repayment (after taking such payment into account) by payment on each Installment Date remaining in the Repurchase Period of an amount equal to the quotient of (x) the aggregate repurchase price with respect to the Transaction Assets held by Buyer as of the date of such repayment (after taking such repayment into account) divided by (y) the number of Installment Dates remaining during the Repurchase Period. Any Repurchase Price payments made by a Seller to Buyer subsequent to an Installment Date shall be credited at the time of such payment and be applied to the payment due and payable on the next succeeding Installment Date. Notwithstanding anything to the contrary contained herein, at any time following the date that is thirty (30) days prior to the first anniversary of the date of this Agreement, Sellers may request in writing that Buyer consider extending the Purchase Period for further additional periods of one (1) year; provided that no Default or Event of Default shall have occurred and be continuing at the time of such request. Such request shall be subject to Buyer's approval in its sole discretion. Within ten (10) Business Days of Buyer's receipt of Sellers' request, Buyer shall notify Sellers whether such request has been approved. Buyer's failure to so notify Sellers shall be deemed to constitute Buyer's denial of such request. (b) Notwithstanding that Buyer and Sellers intend all Transactions hereunder to be sales of the related Transaction Assets to Buyer, each Seller hereby promises to pay to Buyer an amount equal to the accreted value of the Price Differential of each Transaction (a "Periodic Advance Repurchase Payment") for the period from and including the date of such Transaction to but excluding the date on which the Repurchase Price with respect to such Transaction shall be paid in full, at a rate per annum (the 22 "Pricing Rate") equal to the Eurodollar Rate plus the applicable Eurodollar Rate Spread. Notwithstanding the foregoing, each Seller hereby promises to pay to Buyer, to the extent permitted by applicable law, a late fee (the "Late Fee") at the applicable Late Fee Rate with respect to any Repurchase Price Amount and to any other amount payable by each Seller hereunder that shall not be paid in full when due 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 late fees pursuant to this subsection shall not constitute a waiver of any Default and shall not otherwise limit or prejudice any right of Buyer hereunder. (c) Any Periodic Advance Repurchase Payment with respect to a Transaction shall be made monthly in arrears on the first Business Day of each month and for the last month of this Agreement on the first Business Day of such last month and on the Termination Date. Any late fee payable at the Late Fee Rate shall accrue daily and shall be payable upon such accrual. (d) Any Transaction Asset may be repurchased and prepayments in reduction of the Repurchase Price for any Transaction Asset may be made at any time upon two (2) Business Days prior written notice, without any penalty or premium; provided, however, that any such payment or prepayment of the Repurchase Price shall be accompanied by an amount representing any accrued but unpaid Periodic Advance Repurchase Payments, any accrued but unpaid Late Fees and all other amounts then due under the Transaction Documents (including, without limitation, all amounts due under Section 4 hereof). Each prepayment in reduction of the Repurchase Price of a Transaction Asset that is voluntary (as opposed to mandatory under the terms of this Agreement) shall be in an amount of not less than One Hundred Thousand Dollars ($100,000.00). 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 Transaction Balance as designated by the relevant Seller to Buyer in writing. (e) With respect to any Transaction Asset, the relevant Seller shall repay to Buyer an amount equal to the product of (i) the amount of casualty or condemnation proceeds paid to, or for the benefit of, such Seller or any underlying obligor in respect of such Transaction Asset to the extent that such Seller is not required under the underlying loan documents with such Seller's obligor to reserve, escrow, re-advance or apply such proceeds for the benefit of such obligor or the Underlying Property and (ii) the Purchase Rate applicable to such Transaction Asset. So long as no Default or Event of Default has occurred and is then continuing, such amounts paid to Buyer shall be applied in reduction of the Asset-Specific Transaction Balance relating to such Transaction Asset. 4.02. Payments. (a) Except to the extent otherwise provided herein, all Repurchase Price payments, Periodic Advance Repurchase Payments, Late Fees and other amounts to be paid by Sellers under this Agreement shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at the following account maintained by Buyer: Account No. 30463591, for the account of Morgan Stanley Bank, 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). Sellers acknowledge that they have no rights of withdrawal from the foregoing account. Buyer shall endeavor to send the relevant Seller 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 Buyer to send, or of such Seller to receive, such bill shall in no way affect such Seller's obligation to pay amounts due under this Agreement. (b) Except to the extent otherwise expressly provided herein, if the due date of any payment under this Agreement would otherwise fall on a day that is not a Business Day, such date shall 23 be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.03. Computations. The amount of Periodic Advance Repurchase Payments and Late Fees 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. Buyer shall determine any Pricing Rate or Late Fee Rate payable with respect to Transactions hereunder, and such determination shall be conclusive and binding, absent manifest error. 4.04. [Intentionally Omitted.]. 4.05. Booking of Transactions. Without limitation of Buyer's rights to sell, assign or transfer a Transaction or any interest therein, including any participation interest therein, at any time and from time to time, Buyer may make, carry or transfer such Transaction at, to, or for the account of any of its branch offices or the office of an Affiliate of Buyer. 4.06. Buyer's Funding of Eurodollar Rate Transactions. Sellers hereby expressly acknowledge and agree that Buyer may fund a Transaction 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 Eurodollar Rate in an amount equal to the Purchase Price of such Transaction and having a maturity comparable to the relevant payment period or (ii) through Buyer's entering into or purchase of repurchase agreements, interest rate agreements, swap agreements or other arrangements in such amounts as Buyer shall determine (and which amounts may or may not, in Buyer's sole discretion, be "match funded" to such Transaction). Calculation of all amounts payable to Buyer under this Section 4.06 shall be made as though Buyer had actually funded such Transaction 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 Transaction and having a maturity comparable to the relevant payment period and through the transfer of such Eurodollar deposit from an off-shore office of Buyer to a domestic office of Buyer in the United States of America; provided, however, that Buyer may fund such Transaction in any manner it sees fit and the foregoing assumptions shall be utilized only for purposes of calculating amounts payable under this Section 4.06. 4.07. Income Payments. (a) Subject to Section 5.06 hereof, the relevant Seller shall be entitled to receive an amount equal to all Income paid or distributed on or in respect of the Transaction Assets that is not otherwise received by such Seller, to the full extent it would be so entitled if the Transaction Assets had not been sold to Buyer; provided that in no event shall Buyer be entitled to receive any proceeds received from any Transaction Asset Obligor in connection with the refinancing and/or final distribution to the relevant Seller with respect to any Eligible Transaction Assets to the extent same exceeds the sums provided to be paid to Buyer under Section 8.15 of this Agreement. (b) Provided no Event of Default has occurred and is continuing, and subject to the terms of the Transaction Documents, each Seller shall retain the right to take all actions under the Transaction Documents and to retain all contact with the relevant Transaction Asset Obligor, to the full extent it would be had the Transaction Assets not been sold to Buyer. 4.08. Compensation for Increased Costs. If Buyer 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 24 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 advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Buyer; or (b) imposes any other condition on or affecting Buyer or its obligations hereunder or the interbank Eurodollar market; and the result of any of the foregoing is to increase the cost to Buyer of agreeing to enter into or remain a party to, the Transactions hereunder or to reduce any amount received or receivable by Buyer with respect thereto; then, in any such case, Sellers shall promptly (but in any event no later than five (5) Business Days following any notice from Buyer of the same) pay to Buyer, upon receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate Buyer for any such increased cost or reduction in amounts received or receivable hereunder. Buyer shall deliver to Sellers a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Buyer under this Section 4.08, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 4.09. Limitation on Types of Transactions; Illegality. Anything herein to the contrary notwithstanding, if: (a) Buyer 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 2.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the amounts of Periodic Advance Repurchase Amounts or of Late Fees for Transactions as provided herein; or (b) Buyer determines, which determination shall be conclusive, that the relevant rate of interest referred to in the definition of "Eurodollar Base Rate" in Section 2.01 hereof upon the basis of which the Pricing Rate for Transactions is to be determined is not likely adequate to cover the cost to Buyer of making or maintaining Transactions; or (c) Buyer determines, which determination shall be conclusive, that it is or will be unlawful for Buyer to honor its obligation to make or maintain Transactions hereunder using a Eurodollar Rate as a result of compliance by Buyer 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 Buyer shall give Sellers prompt notice thereof and, so long as such condition remains in effect, Buyer shall be under no obligation to enter into additional Transactions, and each Seller shall either repurchase all relevant Transaction Assets as may be held by Buyer or pay Periodic Advance Repurchase Payments on such Transactions at a Pricing Rate per annum equal to the Eurodollar Substitute Rate. 25 Section 5. Precautionary Collateral Security. 5.01. Transaction Assets; Precautionary Security Interest. (a) The parties intend that the Transactions hereunder be sales and purchases and not loans; provided that in order to preserve the rights of Buyer under this Agreement in the event that any court or other forum re-characterizes any Transaction hereunder as a loan, each Seller shall be deemed to have assigned, pledged and granted a security interest in all of its right, title and interest in, to and under the relevant Transaction Assets and the related Transaction Asset Items described in Section 5.01(b) below to Buyer, as security for the prompt repayment and performance by the relevant Seller of its obligations under the Transaction Documents and the Transactions entered into under this Agreement, including, without limitation, such Seller's obligation to repurchase Transaction Assets at the Repurchase Price, or if such obligation were to be re-characterized as a loan, to repay such loan, and to pay any and all other amounts owing hereunder and any and all MS Indebtedness from time to time outstanding (collectively, the "Repurchase Obligations"). Each Seller agrees to mark its computer records to evidence the interests granted to Buyer hereunder. (b) All of the relevant Seller's right, title and interest in, to and under each of the following items of property transferred pursuant to the terms of this Agreement by such Seller to Buyer from time to time and whether now owned or hereafter acquired, now existing or hereafter created and wherever located, is hereinafter collectively referred to as a "Transaction Asset Items": (i) all Subordinate Mortgage Loans, Mezzanine Loans, B Notes, Whole Loans, Preferred Equity Interests, CMBS, participation interests in any of the foregoing, CDO Notes and Other Approved Assets; (ii) all Transaction Asset Documents, including without limitation all promissory notes, all securities, any collateral pledged or otherwise relating to such Transaction Asset, all representations and warranties made to, or for the benefit of, Seller by any Transaction Asset Obligor, all Servicing Records (as defined in Section 12.14(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 Buyer; (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 Transaction Asset and all claims and payments thereunder; (iv) all other insurance policies and insurance proceeds relating to any Transaction Asset or the related Underlying 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 26 in items (i) through (vii) of this Section 5.01(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 Transaction Asset Documents as exclusive bailee and agent for Buyer pursuant to terms of the Custodial Agreement and shall deliver to Buyer Trust Receipts each to the effect that it has reviewed such Transaction Asset Documents in the manner and to the extent required by the Custodial Agreement and identifying any deficiencies in such Transaction Asset Documents as so reviewed. 5.02. Further Assurances. (a) Each Seller shall undertake, with respect to each Transaction Asset sold to Buyer and deemed to be pledged hereunder as security for a Transaction pursuant to Section 5.01(a), any and all actions deemed necessary by Buyer for the transfer by the relevant Seller to Buyer of a valid ownership interest and the granting of a precautionary first priority security interest, as the case may be, in such Transaction Asset. Without limiting the generality of the foregoing, each Seller shall take such steps as are necessary for the transfer of a valid ownership interest and the granting and perfection of a precautionary first priority security interest in securities and related Transaction Assets. (b) At any time and from time to time, upon the written request of Buyer, and at the sole expense of the relevant Seller, such Seller 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 Buyer may reasonably request for the purpose of obtaining or preserving the full benefits of this 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 or an assignment of any of the Transaction Asset Documents. Each Seller also hereby authorizes Buyer to file any such financing or continuation statement without the signature of any Seller to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. 5.03. Changes in Locations, Name, etc. None of the Sellers shall (i) change the location of its chief executive office/chief place of business from that specified in Section 7 hereof or (ii) change its name, identity or organizational structure (or the equivalent) or change the location where it maintains its records with respect to the Transaction Assets unless it shall have given Buyer at least ten (10) days prior written notice thereof and shall have delivered to Buyer all Uniform Commercial Code financing statements and amendments thereto as Buyer shall request and taken all other actions deemed necessary by Buyer to continue its perfected status in the Transaction Assets with the same or better priority. 5.04. Buyer's Appointment as Attorney-in-Fact. (a) Each Seller hereby irrevocably constitutes and appoints Buyer and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of each Seller and in the name of each Seller or in its own name, from time to time in Buyer's discretion, for the purpose of carrying out the terms of this 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 Agreement, and, without limiting the generality of the foregoing, each Seller hereby gives Buyer the power and right, on behalf of the relevant Seller, without assent by, but with notice to, such Seller, if an Event of Default shall have occurred and be continuing, to do the following: 27 (i) in the name of each Seller 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 Transaction Asset 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 Buyer for the purpose of collecting any and all such moneys due under any such mortgage insurance or with respect to any other Transaction Asset whenever payable; (ii) to pay or discharge taxes and Liens levied or placed on or threatened against the Transaction Asset; and (iii) (A) to direct any party liable for any payment under any Transaction Asset to make payment of any and all moneys due or to become due thereunder directly to Buyer or as Buyer 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 Transaction Asset; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Transaction Asset; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Transaction Asset or any part thereof and to enforce any other right in respect of any Transaction Asset; (E) to defend any suit, action or proceeding brought against any Seller with respect to any Transaction Asset; (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 Buyer may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Transaction Assets as fully and completely as though Buyer were the absolute owner thereof for all purposes, and to do, at Buyer's option and the relevant Seller's expense, at any time, and from time to time, all acts and things which Buyer deems reasonably necessary to protect, preserve or realize upon the Transaction Asset and Buyer's Liens thereon and to effect the intent of this Agreement, all as fully and effectively as the relevant Seller might do. Each Seller hereby ratifies 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 Repurchase Obligations hereunder. (b) Each Seller also authorizes Buyer, at any time and from time to time, to execute, in connection with any sale provided for in Section 5.07 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Transaction Assets. (c) The powers conferred on Buyer pursuant to this Section 5.04 are solely to protect Buyer's interests in the Transaction Asset and shall not impose any duty upon Buyer to exercise any such powers. Buyer shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither Buyer nor any of its officers, directors, or employees shall be responsible to any Seller for any act or failure to act hereunder, except for its own gross negligence or willful misconduct. 5.05. Performance by Buyer of Seller's Obligations. If a Seller fails to perform or comply with any of its agreements contained in the Transaction Documents and Buyer may itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Buyer incurred in connection with such performance or compliance, together with Late Fees thereon at a rate per annum equal to the Late Fee Rate, shall be payable by the relevant Seller to Buyer on demand and shall constitute Repurchase Obligations. 28 5.06. Proceeds. If an Event of Default shall occur and be continuing, (a) all proceeds of any Transaction Asset received by any Seller consisting of cash, checks and other near-cash items shall be held by the relevant Seller in trust for Buyer, segregated from other funds of such Seller, and, within two (2) Business Days of receipt by such Seller, shall be turned over to Buyer in the exact form received by such Seller (duly endorsed by such Seller to Buyer, if required, in order to be negotiated by Buyer) and (b) any and all such proceeds received by Buyer (whether from a Seller or otherwise) may, in the sole discretion of Buyer, be held by Buyer as collateral security for, and/or then or at any time thereafter may be applied by Buyer against, the Repurchase Obligations (whether matured or unmatured), such application to be in such order as Buyer shall elect. Any balance of such proceeds remaining after the Repurchase Obligations shall have been paid in full and this Agreement shall have been terminated shall be paid over to Seller 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 Transaction Asset. 5.07. Remedies. If an Event of Default shall occur and be continuing, Buyer may, at its option, enter into one or more Interest Rate Protection Agreements covering all or a portion of the Transaction Assets sold to Buyer hereunder, and Seller shall be responsible for all damages, judgments, costs and expenses of any kind which may be imposed on, incurred by or asserted against Buyer 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, Buyer may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Repurchase Obligations, all rights and remedies of a secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, Buyer 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 the relevant Seller 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 Transaction Assets, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Transaction Asset 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 Buyer 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. Buyer 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 Transaction Asset so sold, free of any right or equity of redemption in the relevant Seller, which right or equity is hereby waived or released. Each Seller further agrees, at Buyer's request, to assemble the Transaction Asset Items and make them available to Buyer at places which Buyer shall reasonably select, whether at the relevant Seller's premises or elsewhere. Buyer 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 Transaction Asset or in any way relating to the Transaction Asset or the rights of Buyer hereunder, including without limitation reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Repurchase Obligations, in such order as Buyer may elect, and only after such application and after the payment by Buyer 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 Buyer account for the surplus, if any, to the relevant Seller. To the extent permitted by applicable law, each Seller waives all claims, damages and demands it may acquire against Buyer arising out of the exercise by Buyer of any of its rights hereunder, other than those claims, damages and demands arising from the gross negligence or willful misconduct of Buyer. If any notice of a proposed sale or other disposition of Transaction Asset shall be required by law, such notice shall be deemed reasonable and 29 proper if given at least ten (10) days before such sale or other disposition. Each Seller shall remain liable for any deficiency (plus accrued interest thereon as contemplated pursuant to Section 4.01(b) hereof) if the proceeds of any sale or other disposition of the Transaction Asset (net of costs incurred in connection with such sale or other disposition) are insufficient to pay the Repurchase Obligations and the fees and disbursements of any attorneys employed by Buyer to collect such deficiency. 5.08. Limitation on Duties Regarding Preservation of Transaction Asset Items. Buyer's duty with respect to the custody, safekeeping and physical preservation of the Transaction Asset Items 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 Buyer deals with similar property for its own account. Neither Buyer 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 Transaction Assets or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Transaction Assets upon the request of a Seller or otherwise. 5.09. Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Transaction Asset are irrevocable and powers coupled with an interest. 5.10. Release of Security Interest. Upon termination of this Agreement and repayment to Buyer of all Repurchase Obligations and the performance of all obligations under the Transaction Documents, Buyer shall release its security interest in any remaining Transaction Assets. 5.11. Release of Transaction Assets. Provided that no Default or Event of Default shall exist (other than one that (a) relates solely to the Transaction Assets to be released and (b) will be cured simultaneously with such release) and that Seller shall have paid all sums then due under the Transaction relating thereto, upon (i) the relevant Seller's payment in full of the Asset-Specific Transaction Balance with respect to a portion of the Transaction Assets, and (ii) receipt by Buyer of a written request from such Seller for the release of such Transaction Asset, Buyer shall as soon as practicable release (and Buyer shall reasonably cooperate with such Seller to facilitate reasonable escrow arrangements to facilitate a simultaneous release of) the related Transaction Asset Documents and the related Transaction Asset and any liens related thereto to such Seller or, to the extent necessary to facilitate future savings of mortgage tax in states that impose mortgage taxes, assign such liens as such Seller shall request; provided that any such assignments shall be without recourse, representation or warranty of any kind except that Buyer shall represent and warrant that such Transaction Asset has not been previously assigned by Buyer. Buyer shall with reasonable promptness, after a written request from Seller, execute any document or instrument necessary to effectuate such release or assignment. 5.12. Substitution of Eligible Transaction Assets. From time to time until the Custodian is otherwise notified by Buyer, which notice shall be given by Buyer only during the existence of an Event of Default, and with the prior written consent of Buyer, a Seller may substitute one or more of the relevant Transaction Assets with one or more substitute Eligible Transaction Assets having an aggregate Margin Maintenance Asset Value equal to or greater than the Margin Maintenance Asset Value of the Transaction Asset(s) being substituted for, or obtain the release of one or more Transaction Assets; provided that, after giving effect to such substitution or re-transfer, the Repurchase Obligations then outstanding shall not exceed the Aggregate Margin Maintenance Asset Value, which determination shall be made solely by Buyer. In connection with any such requested substitution or re-transfer, the relevant Seller will provide notice to the Custodian and Buyer no later than 3:00 p.m. New York City time, on the date of such request, specifying the Transaction Asset(s) to be substituted for or re-transferred and the substitute Transaction Asset(s) to be sold hereunder in substitution thereof, if any, and shall deliver with such notice a Custodial Identification Certificate and a revised Transaction Asset Schedule indicating any substitute Transaction Assets. 30 Section 6. Conditions Precedent. 6.01. Initial Transaction. The obligation of Buyer to enter into the initial Transaction hereunder is subject to the satisfaction, immediately prior to or concurrently with the entering into such Transaction, of the condition precedent that Buyer shall have received all of the following items and documents, each of which shall be satisfactory to Buyer and its counsel in form and substance: (a) Transaction Documents. (i) This Agreement, duly completed and executed; (ii) A Confirmation, together with the Structuring Fee; and (iii) The Custodial Agreement, duly executed and delivered by each Seller and Custodian. In addition, each Seller shall have taken such other action as Buyer shall have requested in order to perfect the security interests created pursuant to the Agreement. (b) Organizational Documents. A good standing certificate and certified copies of articles of incorporation and by-laws of each Seller and certificates evidencing all requisite authority for each Seller with respect to the execution, delivery and performance of the Transaction Documents and each other document to be delivered by any Seller from time to time in connection herewith (and Buyer may conclusively rely on such certified copies and certificates until it receives notice in writing from the relevant Seller to the contrary); (c) Legal Opinion. A legal opinion of counsel to each Seller in form and substance satisfactory to Buyer in its sole discretion; (d) Trust Receipt and Transaction Asset 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 Transaction Asset 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 Transaction Asset for the benefit of Buyer, attached; and (f) Other Documents. Such other documents as Buyer may reasonably request. 6.02. Initial and Subsequent Transactions. The entering into each Transaction with a Seller (including the initial Transaction) on any Business Day is subject to the delivery of all Transaction Asset Documents pertaining to the Eligible Transaction Assets to be sold for such Transaction, together with all documents set forth in Section 3.03(b)(i)-(xii) and the satisfaction of the following further conditions precedent, both immediately prior to the making of such Transaction 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 Purchase Price payment; (b) Buyer shall have received from the relevant Seller, and such Seller shall have received from each Transaction Asset Obligor, such representations and warranties as Buyer shall, in its sole discretion, deem satisfactory. The representations and warranties made by the relevant Seller in 31 Section 7, elsewhere in each of the Transaction Documents, shall be true and complete on and as of the date of the making of such Transaction in all material respects (in the case of the representations and warranties in Section 7.09, solely with respect to Eligible Transaction Assets included in the Aggregate Margin Maintenance Asset Value) 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). Buyer shall have received an officer's certificate signed by a Responsible Officer of the relevant Seller certifying as to the truth and accuracy of the above, which certificate shall also include a representation that (i) such Seller is in compliance with all governmental licenses and authorizations, (ii) such Seller 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 Transaction Asset(s) for such Transaction are, to the best knowledge of such Seller after diligent inquiry, true and correct (or shall fully explain all adverse changes from the information previously supplied to Buyer), (iv) there has been no change in the organizational and authority documents provided to Buyer pursuant to Section 6.01(b) hereof since the date of the most recent certification thereof to Buyer, and (v) there has been no Material Adverse Effect since the date of the last Purchase Price payment to such Seller hereunder; (c) The aggregate Purchase Price of the Transaction Assets shall not exceed the Aggregate Margin Maintenance Asset Value; (d) Subject to Buyer's right to perform one or more Due Diligence Reviews pursuant to Section 12.15 hereof, Buyer shall have completed its due diligence review of the Transaction Asset Documents for the Transaction Asset and such other documents, records, agreements, instruments, mortgaged properties or information relating to such Transaction Asset as Buyer in its sole discretion deems appropriate to review and such review shall be satisfactory to Buyer in its sole discretion; (e) Buyer shall have received from Custodian a Trust Receipt, together with a Transaction Asset Schedule and Exception Report with Exceptions (as defined in the Custodial Agreement) as are acceptable to Buyer in its sole discretion, in respect of the Eligible Transaction Assets to be sold hereunder on such Business Day; (f) Buyer shall have received from the relevant Seller a Lender's Release Letter from an existing lender (if applicable) substantially in the form of Exhibit D-1 hereto (or such other form acceptable to Buyer) or a Seller's Release Letter substantially in the form of Exhibit D-2 hereto (or such other form acceptable to Buyer) covering each Transaction Asset to be sold to Buyer; (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 thirty (30) consecutive days or an event or events shall have occurred resulting in Buyer not being able to finance any Transactions 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; (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 thirty (30) consecutive days or an event or events shall have occurred resulting in Buyer not being able to sell securities backed by mortgage loans at prices which would have been reasonable prior to such event or events; or 32 (iii) there shall have occurred a material adverse change in the financial condition of Buyer which effects (or can reasonably be expected to effect) materially and adversely the ability of Buyer to fund its obligations under this Agreement; (h) Transaction Costs. The relevant Seller shall have paid Buyer from the proceeds of the Purchase Price to be paid in connection with such Transaction, all Transaction Costs for which bills have been submitted; provided, however, that nothing herein shall be deemed to waive such Seller's obligation to pay all Transaction Costs whether billed before or after the entering into a Transaction pursuant to which such Transaction Costs were incurred; (i) Other Documents. Buyer shall have received such other documents, and the relevant Seller shall have taken such other action in order to perfect the ownership interest transferred hereunder and the security interests created hereunder, as Buyer 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 Confirmation by the relevant Seller hereunder shall constitute a certification by such Seller that all the conditions set forth in this Section 6 have been satisfied (both as of the date of such notice, request or confirmation and as of the date of such Transaction). 6.03. Additional Requirements. (a) Each Seller and Buyer recognize and agree that the categories of Transaction Assets defined herein as categories of assets which may be submitted by each Seller to Buyer for review by Buyer as Eligible Transaction Assets hereunder are general in nature and that the full scope of such Transaction Asset categories may be unknown. Consequently, the appropriate requirements are not fully known for (i) the documents to be provided by relevant Seller for underwriting and due diligence review by Buyer and (ii) submittals by the relevant Seller in order to transfer ownership and to create and perfect a precautionary first priority security interest in the Transaction Asset, as the case may be. Therefore, Sellers and Buyer agree that, as a further condition precedent to funding a Transaction in respect of any Transaction Asset hereunder, the relevant Seller shall have delivered to Buyer all information and documents determined by Buyer in good faith to be required for its underwriting and examination of such Transaction Asset and for the transfer of ownership or the granting and perfection of a precautionary first priority security interest therein, as the case may be. (b) Without limiting the generality of the foregoing Section 6.03(a), the relevant Seller shall execute and deliver all documents necessary for transfer of a valid ownership interest and the granting of a precautionary first priority security interest in any Transaction Asset, as the case may be, determined by Buyer to be Eligible Transaction Assets hereunder, including without limitation (i) all instruments evidencing indebtedness payable to such Seller or pledged to such Seller as precautionary security for a Transaction, (ii) all instruments granting or perfecting a security interest for the benefit of such Seller or pledged to such Seller as precautionary security for a Transaction (including, without limitation, assignments, pledge agreements and UCC financing statements), (iii) all instruments evidencing an interest in an entity pledged to such Seller as precautionary security for a Transaction (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 Seller, or pledged to such Seller for the repayment of a Repurchase Price 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 a Transaction Asset. 33 Section 7. Representations and Warranties. Each Seller represents and warrants to Buyer that throughout the term of this Agreement: 7.01. Existence. Each Seller (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its organization, (b) has all requisite corporate 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. The organizational structure chart of the Sellers attached as Schedule 5 hereto is true, accurate and complete as of the Effective Date. 7.02. Action. Each Seller has all necessary power, authority and legal right to execute, deliver and perform its obligations under each of the Transaction Documents; the execution, delivery and performance by each Seller of each of the Transaction Documents have been duly authorized by all necessary action on its part; and each Transaction Document has been duly and validly executed and delivered by the relevant Seller and constitutes a legal, valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms. 7.03. 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 any Seller or any of its 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 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 $5,000,000.00, (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. 7.04. No Breach. Neither (a) the execution and delivery of the Transaction 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 any Seller, 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 any Seller or any of its 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 Agreement) upon any Property of any Seller or any of its Subsidiaries pursuant to the terms of any such agreement or instrument. 7.05. 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 each Seller of the Transaction Documents or for the legality, validity or enforceability thereof, except for filings and recordings in respect of the Liens created pursuant to this Agreement. 34 7.06. Use of Proceeds; Margin Regulations. Neither the making of any Transaction 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 Transaction 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 Buyer, the relevant Seller, any applicable Affiliate or Subsidiary of such Seller and the recipient of any portion of the proceeds all or any portion of any Transaction shall furnish to Buyer a statement on Federal Reserve Form G-3 referred to in Regulation U. 7.07. Taxes. Each Seller and its 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 each Seller and its consolidated Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the relevant Seller, adequate. 7.08. Investment Company Act. The relevant Seller is not required to register as an "investment company" under the Investment Company Act of 1940, as amended. 7.09. Transaction Assets; Transfer of Ownership and Precautionary Collateral Security. (a) The relevant Seller has not assigned, pledged, or otherwise conveyed or encumbered any Eligible Transaction Asset to any other Person, and immediately prior to the sale and precautionary pledge of such Eligible Transaction Asset to Buyer, unless otherwise approved by Buyer in writing, such Seller was the sole owner of such Eligible Transaction Asset 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 transfer of ownership and granting of the precautionary Liens in favor of Buyer hereunder. (b) The provisions of this Agreement are effective to either constitute a sale of the Transaction Assets or create in favor of Buyer a valid security interest in all right, title and interest of the relevant Seller in, to and under the Transaction Asset. (c) (i) Upon (x) receipt by Custodian of each Mortgage Note evidencing a Subordinate Mortgage Loan or Whole Loan, as applicable, endorsed in blank by a duly authorized officer of the relevant Seller, (y) the recordation of the mortgage to Buyer securing such Subordinate Mortgage Loan or Whole Loan, as applicable, and an assignment of such mortgage and (z) the filing of a UCC financing statement with respect to such assignment of mortgage, Buyer shall either be the owner of the Subordinate Mortgage Loan or Whole Loan or have a fully perfected first priority security interest in the Mortgage Note, subject only to prior liens and encumbrances permitted by Buyer, in the Subordinate Mortgage Loan or Whole Loan, as applicable, evidenced thereby and in such Seller'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 relevant Seller, (y) the delivery of a duly executed pledge to such Seller 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 35 such Seller of a duly executed pledge of such pledged interests and the filing of UCC assignment statements with respect thereto, Buyer shall either be the owner of the Mezzanine Loan or have a fully perfected first priority security interest in such note, in the Mezzanine Loan evidenced thereby, and in such Seller's interest in the related Property. (iii) Upon (i) the delivery to Buyer or its designee of CMBS or other Transaction Assets constituting securities (as defined in Article 8 of the Uniform Commercial Code) in accordance with Section 6.02 hereof and (ii) the filing of UCC financing statements naming Buyer as "Secured Party" and the relevant Seller as "Debtor", and describing the Transaction Asset, in the jurisdictions and recording offices for which security interests may be perfected in the Transaction Asset by the filing of UCC financing statements, either Buyer will have a valid ownership interest or the security interests granted hereunder in the Transaction Asset will constitute fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of such Seller in, to and under such Transaction Asset, and, without limiting the foregoing, Buyer will have a "securities entitlement" (as defined in Article 8 of the Uniform Commercial Code) in the Transaction Asset referenced in the foregoing clause (i). (iv) As to all other Eligible Transaction Assets (including, but not limited to, a B Note, a Mezzanine Loan or a Preferred Equity Interest), upon receipt by Custodian of all documents set forth in Buyer's notice to the relevant Seller pursuant to Section 3.03(c) hereof, Buyer shall have either a valid ownership interest or a fully perfected first priority security interest therein and in Seller's interest in the related Property. (d) Upon the filing of UCC financing statements naming Buyer as "Secured Party" and the relevant Seller as "Debtor", and describing the Transaction Asset, in the jurisdictions and recording offices for which security interests may be perfected in the Transaction Asset by the filing of UCC financing statements, the security interests granted hereunder in the Transaction Asset will constitute either a valid ownership interest or a fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of such Seller in, to and under such Transaction Asset which can be perfected by filing under the Uniform Commercial Code. 7.10. Chief Executive Office. Each Seller's chief executive office on the Effective Date is located at 410 Park Avenue, 14th Floor, New York, New York 10022. 7.11. Location of Books and Records. The location where each Seller keeps its books and records, including all computer tapes and records relating to the Transaction Assets is its chief executive office. 7.12. True and Complete Disclosure. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of each Seller to Buyer in connection with the negotiation, preparation or delivery of this Agreement and the other Transaction 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 or (y) omit to state any 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 each Seller to Buyer in connection with this Agreement and the other Transaction 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 each Seller, after due inquiry, that could reasonably be expected to have a Material Adverse Effect that has not been disclosed herein, in the other Transaction 36 Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to Buyer for use in connection with the transactions contemplated hereby or thereby. 7.13. ERISA. Each Plan to which any Seller or its Subsidiaries make direct contributions, and, to the knowledge of the relevant Seller, 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 any Seller would be under an obligation to furnish a report to Buyer under Section 8.01(e) hereof assuming a request therefor has been made by Buyer. Section 8. Covenants of Sellers. Each Seller covenants and agrees with Buyer that, so long as any Transaction is outstanding and until payment in full of all Repurchase Obligations: 8.01. Financial Statements, Reports, etc. Each Seller shall, or, to the extent applicable, shall cause Servicer to, deliver to Buyer: (a) the Monthly Statement; (b) as soon as available and in any event within sixty (60) days after the end of each of the first three quarterly fiscal periods of each fiscal year of the relevant Seller, a status report with respect to such period which describes the cumulative sources and uses of funds for the immediately preceding calendar quarter on each asset sold under this Agreement and a detailed report in a form reasonably satisfactory to Buyer, together with the unaudited, consolidated balance sheets of such Seller 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 of such Seller 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 such Seller, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of such 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); (c) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the relevant Seller, the consolidated balance sheets of the relevant Seller 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 such Seller 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 such Seller 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 sixty (60) days following the end of each of the first three calendar quarters in any fiscal year, or within ninety (90) days following the end of each fiscal year, as the case may be, a certificate from a Responsible Officer of the relevant Seller in form and substance reasonably satisfactory to Buyer that such Seller during such fiscal period or year has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other 37 Transaction 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 Buyer's request, such further information with respect to the operation of any real property, the Transaction Asset, the financial affairs of the relevant Seller and any Plan and Multiemployer Plan as may be requested by Buyer, including all business plans prepared by or for such Seller; provided, however, that with respect to information not previously known to, or in the possession of, such Seller relating to any Multiemployer Plan, such Seller shall only be required to provide such information as may be obtained through good faith efforts; (f) upon Buyer's request, a copy of any financial or other report the relevant Seller shall receive from any underlying obligor with respect to a Transaction Asset within fifteen (15) days after such Seller's receipt thereof; and (g) such other reports as Buyer shall reasonably require. 8.02. Litigation. Each Seller will 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 the relevant Seller or any of its 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 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 $1,000,000.00, or (iii) which, individually or in the aggregate, if adversely determined could reasonably be likely to have a Material Adverse Effect. 8.03. Existence, etc. Each Seller will: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (provided that nothing in this Section 8.03(a) shall prohibit any transaction expressly permitted under Section 8.04 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; (d) not move its chief executive office from the address referred to in Section 7.10 unless it shall have provided Buyer ten (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 Buyer, 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 Buyer. 38 8.04. Prohibition of Fundamental Changes. None of the Sellers 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 a Seller 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 Buyer in Buyer's sole discretion, the performance of all of the relevant Seller's duties and obligations under this Agreement and the Transaction Documents; and (c) such entity shall be at least as creditworthy as such Seller, as determined by Buyer in Buyer's sole and absolute discretion; and, provided, further, that if after giving effect thereto, no Default would exist hereunder. 8.05. Aggregate Margin Maintenance Asset Value Deficiency. If at any time there exists an Aggregate Margin Maintenance Asset Value Deficiency, each Seller shall cure same in accordance with Section 3.04 hereof. 8.06. Notices. Each Seller shall give notice to Buyer: (a) promptly upon receipt of notice or knowledge of the occurrence of any Default or Event of Default; (b) with respect to any Transaction Asset sold to Buyer hereunder, immediately upon receipt of any principal payment (in full or partial) or payment in respect of an Equity Interest; (c) with respect to any Transaction Asset sold to Buyer hereunder, immediately upon receipt 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 Transaction Asset; (d) promptly upon receipt of notice or knowledge of (i) any default related to any Transaction Asset unless otherwise specifically approved by Buyer in writing, (ii) any Lien or security interest (other than security interests created hereby or by the other Transaction Documents) on, or claim asserted against, any of the Transaction Asset, (iii) any event or change in circumstances has or could reasonably be expected to have an adverse affect on the Margin Maintenance Asset Value of the Transaction Asset for a Transaction or (iv) any event or change in circumstances which could reasonably be expected to have a Material Adverse Effect; (e) with respect to any Transaction Asset sold to Buyer hereunder, promptly upon entering into a modification of any documents pertaining to such Transaction Asset which would have a material adverse effect on such Transaction Asset; and (f) with respect to any Transaction Asset, immediately upon the acquisition or receipt by the relevant Seller or any Affiliate of such Seller of any interest of any kind in respect of such Transaction Asset which interest has not been sold to Buyer as Transaction Asset Item under this Agreement. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the relevant Seller setting forth details of the occurrence referred to therein and stating what action such Seller has taken or proposes to take with respect thereto. 8.07. Reports. Each Seller shall provide Buyer with a quarterly report, which report shall include, among other items, a summary of the relevant Seller's delinquency and loss experience with respect to any Transaction Asset serviced by such Seller, any Servicer or any designee of either, plus any 39 such additional reports as Buyer may reasonably request with respect to such Seller's or any Servicer's servicing portfolio or pending originations of Transaction Assets. 8.08. Transactions with Affiliates. None of the Sellers shall, except as approved by Buyer in writing, enter into any transaction in any manner relating to any Transaction Asset hereunder, including without limitation any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate; provided, however, that Buyer may consider for approval any such transaction which is (a) otherwise permitted under this Agreement, (b) in the ordinary course of the relevant Seller's business and (c) upon fair and reasonable terms no less favorable to such Seller 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 8.08 to any Affiliate. 8.09. Foreclosure or Other Remediation by Seller. Any 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 underlying loans held by the relevant Seller relating to any Transaction Asset hereunder. 8.10. Limitation on Liens. Each Seller will defend the Transaction Asset against, and will take such other action as is necessary to remove, any Lien, security interest or claim on or to the Transaction Assets, other than the security interests created, or otherwise specifically permitted in writing by Buyer under this Agreement, and each Seller will defend the right, title and interest of Buyer's in and to any Transaction Asset against the claims and demands of all persons whomsoever. Each Seller may request from time to time, subject to Buyer's approval in Buyer's sole determination, to sell participation interests in its interests in Transaction Assets, the sale of which participation interests shall be arm's length transactions and subject to such terms and conditions as Buyer in its sole discretion shall require. 8.11. Limitation on Distributions. After the occurrence and during the continuation of any Event of Default, none of the Sellers shall 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 the relevant 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 such Seller; provided that such Seller shall make such distributions which shall be sufficient to maintain REIT rule compliance, if applicable. 8.12. 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 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. 8.13. Maintenance of Ratio of Total Indebtedness to Tangible Net Worth. CT shall not permit the ratio of Total Indebtedness to Tangible Net Worth at any time to be greater than 5:1. Buyer may consider waiving the foregoing requirements under certain circumstances if requested by a Seller; however, Buyer shall be under no obligation to do so. 8.14. Servicer; Servicing Tape. Each Seller shall provide to Buyer 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 Buyer from time to time, on a loan-by-loan basis and in the aggregate, with respect to the Loan Assets, B Notes, CMBS, Preferred Equity Interests, participation interests in any of the foregoing, CDO Notes and Other Approved Assets serviced hereunder by the 40 relevant Seller or any Servicer. None of the Sellers shall cause any Transaction Asset to be serviced by any servicer other than a servicer expressly approved in writing by Buyer. 8.15. Remittance of Prepayments. Each Seller shall remit, with sufficient detail to enable Buyer to appropriately identify the Transaction, or Transactions, to which any amount remitted applies, to Buyer on each Business Day an amount equal to the product of (i) all principal prepayments that the relevant Seller has received during the previous Business Day and (ii) the Purchase Rate for the related Transaction Asset, together with all Periodic Advance Repurchase Payments and Late Fees due with respect to such Transaction or Transactions through the date of such remittance, any and all charges due with respect to such Transactions and any and all costs and expenses incurred by Buyer (as provided in this Agreement) in connection with such Transactions and the prepayment of the Repurchase Price in respect thereof. Section 9. Events of Default. Each of the following events shall constitute an event of default (an "Event of Default") hereunder: (a) any Seller shall default in the payment of any Repurchase Price or Periodic Advance Repurchase Price Payment with respect to any Transaction when due; or (b) any Seller shall default in the payment of any repurchase price or periodic payments with respect to, or principal of or interest on, any MS Indebtedness when due (whether at stated maturity, upon acceleration or at mandatory or optional prepayment, if applicable) or (c) any Seller shall default in the payment of any other amount payable by it hereunder or under any other Transaction Document after notification by Buyer 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 Transaction Document by any Seller or any certificate furnished to Buyer 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 7.09 hereof which shall be considered solely for the purpose of Section 3.04(b) hereof unless the relevant Seller shall have made any such representations and warranties with knowledge that they were materially false or misleading at the time made); or (e) any Seller shall fail to comply with the requirements of Section 8.03(a), Section 8.04, Section 8.05, Section 8.06, or Sections 8.08 through 8.15 hereof; or any Seller shall otherwise fail to comply with the requirements of Section 8.03 hereof and such default shall continue unremedied for a period of ten (10) Business Days; or any Seller shall fail to observe or perform any other covenant or agreement contained in this Agreement or any other Transaction 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 $5,000,000.00 in the aggregate shall be rendered against any Seller or any of its Subsidiaries by one or more courts, 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 the relevant Seller 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 41 (g) any Seller shall admit in writing its inability to pay its debts as such debts become due; or (h) any Seller 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 the relevant Seller or any of its Subsidiaries, in any court of competent jurisdiction, seeking (i) its 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 such Seller or any such Subsidiary or of all or any substantial part of its property, or (iii) similar relief in respect of such Seller 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 such Seller or any such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (j) the Custodial Agreement or any Transaction Document shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Seller; or (k) any Seller shall grant, or suffer to exist, any Lien on any Transaction Asset except the Liens contemplated hereby; or the Liens contemplated hereby shall cease to be first priority perfected Liens on the Transaction Asset in favor of Buyer or shall be Liens in favor of any Person other than Buyer; or (l) any Seller or any of its respective 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 $10,000,000.00; (m) any materially adverse change in the business or financial condition of any Seller or any of its Subsidiaries shall occur, in each case as determined by Buyer in its sole discretion, or any other condition shall exist which, in Buyer's sole discretion, constitutes a material impairment of the relevant Seller's ability to perform its obligations under this Agreement or any other Transaction Document; (n) MS & Co.'s corporate bond rating has been lowered or downgraded to a rating below A- by S&P or A3 by Moody's and any Seller shall have failed to repay all amounts owing to Buyer under this Agreement and the other Transaction Documents within ninety (90) days following such downgrade; or 42 (o) the matters set forth in the certificate delivered by each Seller pursuant to paragraph 6.01(c) shall at any time cease to be true. Section 10. Remedies Upon Default. (a) Upon the occurrence of one or more Events of Default other than those referred to in Section 9(g) or Section 9(h), Buyer may immediately declare the Repurchase Price of the Transactions then outstanding to be immediately due and payable, together with all interest thereon and fees and expenses accruing under this Agreement. Upon the occurrence of an Event of Default referred to in Section 9(g) or Section 9(h), the Repurchase Price shall immediately and automatically become due and payable without any further action by any Person. (b) Upon the occurrence of one or more Events of Default, Buyer shall have the right to obtain physical possession of the Servicing Records and all other files of the relevant Seller relating to the Transaction Assets and all documents relating to the Transaction Assets which are then or may thereafter come in to the possession of such Seller or any third party acting for such Seller and such Seller shall deliver to Buyer such assignments as Buyer shall request. Buyer shall be entitled to specific performance of all agreements of the relevant Seller contained in this Agreement. (c) Upon the occurrence of an Event of Default, 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 to any indebtedness at any time owing to Buyer to the credit or for the account of the relevant Seller against any and all of the Indebtedness of such Seller, irrespective of whether Buyer shall have made any demand under this Agreement, the Note, any other Security Document or any other document executed in connection with any other MS Indebtedness. Section 11. No Duty of Buyer. The powers conferred on Buyer hereunder are solely to protect Buyer's interests in the Transaction Assets and shall not impose any duty upon it to exercise any such powers. Buyer 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 any Seller for any act or failure to act hereunder, except for its or their own gross negligence or willful misconduct. Section 12. Miscellaneous. 12.01. Waiver. No failure on the part of Buyer to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Transaction Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any Transaction 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. 12.02. Notices. Except as otherwise expressly permitted by this 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 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 Agreement and except for notices given under Section 3 (which shall be effective only on receipt), all such communications shall be deemed to have been duly 43 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. 12.03. Indemnification and Expenses. (a) Each Seller agrees to hold Buyer, 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 Agreement, any Confirmations, any other Transaction 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 Agreement, any Confirmations, any other Transaction 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, each Seller agrees to hold any Indemnified Party harmless from and indemnify such Indemnified Party against all Costs with respect to all Transaction Assets 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 Transaction Asset for any sum owing thereunder, or to enforce any provisions of any Transaction Asset Document, each Seller 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 any 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 any Seller. Each 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 this Agreement, the Confirmation, any other Transaction Document or any transaction contemplated hereby or thereby, including without limitation the reasonable fees and disbursements of its counsel. In the event the sale of a Transaction Asset is re-characterized as a loan, each Seller hereby acknowledges that, notwithstanding the fact that the obligations of the relevant Seller are secured by such Transaction Asset, all obligations of such Seller hereunder are recourse obligations of such Seller. (b) Each 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, this Agreement, any Confirmation, any other Transaction Document or any other documents prepared in connection herewith or therewith. Each 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, inspection, testing and review costs and expenses incurred by Buyer with respect to Transaction Asset under this Agreement, including, but not limited to, those costs and expenses incurred by Buyer pursuant to Sections 12.03(a), 12.14 and 12.15 hereof. 12.04. Amendments. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by each Seller and Buyer and any provision of this Agreement may be waived by Buyer. 44 12.05. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.06. Survival. The obligations of each Seller under Sections 4.04 and 12.03 hereof shall survive the repayment of the Transactions and the termination of this Agreement. In addition, each representation and warranty made or deemed to be made by delivery of a Confirmation by any Seller, herein or pursuant hereto shall survive the entering into of such representation and warranty, and Buyer shall not be deemed to have waived, by reason of making any Transaction, any Default that may arise because any such representation or warranty shall have proved to be false or misleading, notwithstanding that Buyer may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such Transaction was made. 12.07. 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 Agreement. 12.08. Counterparts. This 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 Agreement by signing any such counterpart. 12.09. Agreement Constitutes Security Agreement; Governing Law. This Agreement shall be governed by the internal laws of the State of New York, and shall constitute a security agreement within the meaning of the Uniform Commercial Code. 12.10. SUBMISSION TO JURISDICTION; WAIVERS. EACH SELLER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE CONFIRMATIONS AND THE OTHER TRANSACTION 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 BUYER SHALL HAVE BEEN NOTIFIED; AND 45 (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. 12.11. WAIVER OF JURY TRIAL. EACH SELLER AND BUYER 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 AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 12.12. Acknowledgments. Each Seller hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Transaction Documents; (b) Buyer has no fiduciary relationship to the relevant Seller; and (c) no joint venture exists between Buyer and the relevant Seller. 12.13. Hypothecation or Pledge of Transactions. Buyer shall have free and unrestricted use of all Transaction Assets and nothing in this Agreement shall preclude Buyer from engaging in repurchase transactions with the Transaction Assets or otherwise pledging, re-pledging, hypothecating, or re-hypothecating the Transaction Assets or pledging or otherwise transferring its rights to payment hereunder in respect of any Transaction made hereunder; provided that (i) no action by Buyer referred to in this sentence shall confer on any Person other than Buyer any right against any Seller to require any prepayment of the Purchase Price under Section 3.04 hereof, the right to determine the Purchase Price or Asset Value with respect to any Transaction Asset or any right to enforce against any Seller any other provision of this Agreement, but may grant to any Person the right to require Buyer to enforce any such provisions and (ii) in no event shall Buyer be permitted to assign or transfer (but shall be permitted to participate or pledge) any interest in any Transaction Asset or this Agreement without the prior notice to Seller. Nothing contained in this Agreement shall obligate Buyer to segregate any Transaction Asset delivered to Buyer by any Seller. 12.14. Servicing. (a) Each Seller covenants to maintain or cause the servicing of the Transaction Asset to be maintained with respect to each type of Transaction Asset transferred to Buyer hereunder in conformity with accepted and prudent servicing practices in the industry for such same type of Transaction Asset and in a manner at least equal in quality to the servicing the relevant Seller provides for assets similar to such Transaction Asset 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 Repurchase Obligations have been paid in full or (iii) the transfer of servicing approved by the relevant Seller and Buyer, which Buyer's approval shall not be unreasonably withheld. Midland Loan Services, Inc. shall be the initial servicer. (b) If the Transaction Assets, or any portion thereof, are serviced by a Seller, (i) the relevant Seller agrees that Buyer is the owner and precautionary 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, 46 appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of such Transaction Asset (the "Servicing Records"), and (ii) such Seller transfers to Buyer a valid ownership interest and grants Buyer a precautionary security interest in all servicing fees and rights relating to such Transaction Asset and all Servicing Records to secure the obligation of such Seller or its designee to service in conformity with this Section and any other obligation of such Seller to Buyer. The relevant Seller covenants to safeguard such Servicing Records and to deliver them promptly to Buyer or its designee (including Custodian) at Buyer's request. (c) If the Transaction Assets, or any portion thereof, are serviced by a third party servicer (such third party servicer, the "Servicer"), Seller (i) shall provide a copy of the servicing agreement to Buyer, which shall be in form and substance acceptable to Buyer (the "Servicing Agreement") and (ii) hereby irrevocably assigns to Buyer and Buyer's successors and assigns all right, title, interest of Seller in, to and under, and the benefits of, any Servicing Agreement with respect to such Transaction Asset. Any successor to the Servicer shall be approved in writing by Buyer prior to such successor's assumption of servicing obligations with respect to such Transaction Asset. (d) Each Seller shall provide to Buyer a letter from the relevant Seller (if such Seller is the Servicer) or the Servicer, as the case may be, to the effect that upon the occurrence of an Event of Default, Buyer may terminate any Servicing Agreement and transfer servicing to its designee, at no cost or expense to Buyer, it being agreed that Sellers will pay any and all fees required to terminate the Servicing Agreement and to effectuate the transfer of servicing to the designee of Buyer. (e) After the Purchase Date, until the rights to any Transaction Assets under the Transaction Documents are relinquished by Custodian, no Seller shall have the right to modify or alter the terms of any of the documents pertaining to such Transaction Asset and the relevant Seller will have no obligation or right to repossess such Transaction Asset or substitute other Transaction Asset, except as provided in the Custodial Agreement; provided, however, that so long as no Default or Event of Default has occurred and is continuing, such Seller may enter into such modifications of the terms of such documents as do not, as to any specific Transaction Asset, (i) result in a negative monetary effect or (ii) constitute a material adverse effect. (f) In the event a Seller or its Affiliate is servicing any Transaction Asset, the relevant Seller shall permit Buyer to inspect such Seller's or its Affiliate's servicing facilities, as the case may be, for the purpose of satisfying Buyer that such Seller or its Affiliate, as the case may be, has the ability to service such Transaction Asset as provided in this Agreement. (g) Each Seller shall cause the Servicer to provide a copy of each report and notice sent to the relevant Seller to be sent to Buyer concurrently therewith. 12.15. Periodic Due Diligence Review. Each Seller acknowledges that Buyer has the right to perform continuing due diligence reviews with respect to any Transaction Asset, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or determining and re-determining the Aggregate Margin Maintenance Asset Value under Section 3.04(a) hereof, or otherwise, and each 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 Transaction Assets securing the Transactions, including, without limitation, ordering new credit reports and Appraisals on the applicable Transaction Asset and otherwise regenerating the information used to originate such Transaction Asset(s). Upon reasonable (but no less than one (1) Business Day) prior notice to the relevant Seller, Buyer or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Asset Files and any and all documents, records, agreements, instruments or information relating to such Transaction Asset in the possession or under the control of such Seller and/or 47 Custodian. Each Seller also shall make available to Buyer a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Asset Files and the Transaction Assets. Each 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 Transaction Asset in the possession, or under the control, of the relevant Seller. Each Seller further agrees that the relevant Seller shall reimburse Buyer for any and all out-of-pocket costs and expenses incurred by Buyer in connection with Buyer's activities pursuant to this Section 12.15. 12.16. Intent. (a) The parties hereto recognize that each Transaction is a "repurchase agreement" as that term is defined in Section 101 of Bankruptcy Code (except insofar as the type of Transaction Assets subject to such Transaction or the term of such Transaction would render such definition inapplicable), or a "securities contract" as that term is defined in Section 741 of the Bankruptcy Code (except insofar as the type of Transaction Assets subject to such Transaction would render such definition inapplicable). (b) It is understood that either party's right to liquidate Transaction Assets delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Section 5 hereof is a contractual right to liquidate such Transaction as described in Sections 555 and 559 of the Bankruptcy Code. (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 Transaction 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 "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 or regulations promulgated thereunder). 12.17. Change of any Seller's State of Formation. If any Seller shall change the State under whose laws the relevant Seller shall be organized, such Seller shall promptly provide Buyer 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 Seller's new State of formation, if applicable, together with such opinions of counsel regarding such change as Buyer, in its sole discretion, shall require. 12.18. Set-Off. In addition to any rights and remedies of Buyer provided by this Agreement and by law, Buyer shall have the right, without prior notice to a Seller, any such notice being expressly waived by each Seller to the extent permitted by applicable law, upon any amount becoming due and payable by the relevant Seller 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 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 Buyer or any Affiliate thereof to or for the credit or the account of such Seller. Buyer agrees promptly to notify the relevant Seller after any such set-off and application 48 made by Buyer; provided that the failure to give such notice shall not affect the validity of such set-off and application. 12.19. Joint and Several Liability. The obligations of the Sellers under this Agreement and the Transaction Documents shall be joint and several. 12.20. Reimbursement of Structuring Fee. In the event (a) (i) 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 (ii) each Seller shall have repurchased all of the Transaction Assets and shall have repaid all amounts owing to Buyer under this Agreement within one-hundred eighty (180) days following such downgrade or (b) any of the events described in Sections 4.09(a), 4.09(b), 4.09(c) or 6.02(g)(iii) shall occur and each Seller elects to repurchase all of the relevant Transaction Assets and has repaid to Buyer all amounts due to Buyer under this Agreement, Buyer shall refund to Sellers a portion of the Structuring Fee paid to Buyer hereunder, in an amount equal to the product of (1) the amount of such Structuring 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. [SIGNATURE PAGE FOLLOWS] 49 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. CAPITAL TRUST, INC., as a Seller By: /s/ Geoffrey G. Jervis Name: Geoffrey G. Jervis Title: Chief Financial Officer CT RE CDO 2004-1 SUB, LLC, as a Seller By: /s/ Geoffrey G. Jervis Name: Geoffrey G. Jervis Title: Chief Financial Officer CT RE CDO 2005-1 SUB, LLC, as a Seller By: /s/ Geoffrey G. Jervis Name: Geoffrey G. Jervis Title: Chief Financial Officer Address for Notices: ------------------- 410 Park Avenue, 14th floor New York, New York 10022 Attention: Geoffrey G. 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 [SIGNATURE PAGE TO MASTER REPURCHASE AGREEMENT] MORGAN STANLEY BANK, as Buyer By: /s/ Andrew Neuberger Name: Andrew Neuberger Title: Vice President Address for Notices: ------------------- Morgan Stanley Bank 2500 Lake Park Boulevard, Suite 3C West Valley City, Utah 84120 Attention: Richard Felix Telephone: 801-902-4055 Facsimile: 801-902-4087 E-mail: richard.felix@morganstanley.com and wltapes@morganstanley.com with copies to: -------------- SPG Warehouse Group 1221 Avenue of Americas, 27th Floor New York, New York 10020 Attention: Andrew Neuberger Telephone: 212-762-6401 Facsimile: 212-507-4137 E-mail: andrew.neuberger@morganstanley.com and Morgan Stanley Law Division 1221 Avenue of the Americas, 5th Floor New York, New York 10020 Attention: Su Sun Bai, Esq. Telephone: 212-761-4729 Facsimile: 212-296-3146 E-mail: su.bai@morganstanley.com and Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 Attention: David C. Djaha, Esq. Telephone: 212-878-8158 Facsimile: 212-878-8375 E-mail: david.djaha@cliffordchance.com [SIGNATURE PAGE AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT] SCHEDULE 1 FILING JURISDICTIONS AND OFFICES Delaware Secretary of State Maryland Secretary of State 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 S2-1 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 S3-1 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 S4-1 SCHEDULE 5 ORGANIZATIONAL STRUCTURE CHART OF SELLER S5-1 EXHIBIT A --------- [FORM OF CONFIRMATION] Master Repurchase Agreement, dated as of July __, 2005 (the "Repurchase Agreement"), by and between [relevant Seller] and Morgan Stanley Bank (the "Buyer"),
Buyer: Morgan Stanley Bank Seller: CTMP III MS Finance Sub, LLC Requested Fund Date: _____________________________________________________ Transmission Date: _____________________________________________________ Transmission Time: _____________________________________________________ Type of Funding: Table-Funded:________________________________________ Non-Table Funded:____________________________________ Eligible Transaction Assets to be Pledged: See Attached Unpaid Principal Balance: $____________________________________________________ Requested Wire Amount: $____________________________________________________ Purchase Rate: _____________________________________________________ Maximum Purchase Rate _____________________________________________________ Eurodollar Rate Spread: _____________________________________________________ Wire Instructions: Requested by: [Relevant Seller]
By: -------------------------------------------------------- Name: Title: A-1 Attachment 1 ------------ SCHEDULE OF ELIGIBLE TRANSACTIION ASSETS PROPOSED TO BE SOLD A-2 Attachment 2 ------------ OFFICER'S CERTIFICATE The undersigned hereby certifies to Buyer on behalf of [relevant Seller] ("Seller"), as of the requested Purchase Date, that: (a) no Default or Event of Default has occurred and is continuing on the date hereof nor will occur after giving effect to such Transaction as a result of such Transaction; (b) each of the representations and warranties made by Seller in or pursuant to the Transaction Documents is true and correct in all material respects on and as of such date (in the case of the representations and warranties in Section 7.09 of the Agreement solely with respect to Eligible Transaction Assets being included the Aggregate Margin Maintenance Asset Value on such Purchase Date) as if made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (c) Seller (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite corporate 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; and (c) is qualified to do business and is 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. Responsible Officer Certification: By: -------------------------------------------------------- Name: Title: A-3 EXHIBIT B --------- [FORM OF CUSTODIAL AGREEMENT] B-1 EXHIBIT C --------- [Intentionally Omitted] C-1 EXHIBIT D-1 ----------- [FORM OF EXISTING LENDER'S RELEASE LETTER] (Date) Morgan Stanley Bank 1221 Avenue of the Americas New York, New York 10020 Attention: ------------------------ Facsimile: ------------------------ Re: Certain Transaction Assets Identified on Schedule A hereto and owned by [relevant Seller]. The undersigned hereby releases all right, interest, lien or claim of any kind with respect to the Transaction Assets 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, [EXISTING LENDER] By: --------------------------------------- Name: Title: D-1-1 EXHIBIT D-2 ----------- [FORM OF SELLER'S RELEASE LETTER] (Date) Morgan Stanley Bank 1221 Avenue of the Americas New York, New York 10020 Attention: ----------------------------------------- Facsimile: ----------------------------------------- Re: Master Repurchase Agreement, dated as of _______, 2005 (the "Repurchase Agreement"), among Capital Trust, Inc., CT RE CDO 2004-1 SUB, LLC, CT RE CDO 2005-1 SUB, LLC (collectively, "Sellers", and for the purposes of the letter hereof, [relevant Seller] "Seller") and Morgan Stanley Bank (the "Buyer") Ladies and Gentlemen: With respect to the Transaction Assets described in the attached Schedule A (the "Transaction Assets") (a) we hereby certify to you that the Transaction Assets are not subject to a lien of any third party and (b) we hereby release all right, interest or claim of any kind with respect to such Transaction Assets (other than the repurchase right pursuant to the terms of the Repurchase Agreement), such release to be effective automatically without further action by any party upon payment from Morgan Stanley Bank of the amount of the Purchase Price contemplated under the Repurchase Agreement (calculated in accordance with the terms thereof) in accordance with the wiring instructions set forth in the Repurchase Agreement. Very truly yours, [Relevant Seller] By: ------------------------------------------ Name: Title: D-2-1 EXHIBIT E --------- [FORM OF BAILEE AGREEMENT] [SELLER'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 sale by [RELEVANT SELLER] ("Seller") to Morgan Stanley Bank ("Buyer") Ladies and Gentlemen: In consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller, Buyer and Paul, Hastings, Janofsky & Walker LLP ("Bailee") hereby agree as follows: 1. Seller shall deliver to Bailee in connection with any Transaction Assets delivered to Bailee hereunder an Identification Certificate in the form of Attachment 1 attached hereto to which shall be attached a Transaction Asset Schedule identifying which Eligible Transaction Assets are being delivered to Bailee hereunder. Such Transaction Asset Schedule shall contain the following fields of information: (a) the loan identifying number; (b) the Transaction Asset 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 Seller (the "Purchase Date"), Seller shall have delivered to Bailee, as bailee for hire, the original documents set forth on Schedule A attached hereto (collectively, the "Asset File") for each of the Eligible Transaction Assets (each a "Transaction Asset" and collectively, the "Transaction Assets") listed in Exhibit A to Attachment 1 attached hereto (the "Transaction Asset Schedule"). 3. Bailee shall issue and deliver to Buyer and Custodian on or prior to the Purchase Date by facsimile in the name of Buyer, 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 Bailee has received the documents comprising the Asset File as set forth in the Custodial Identification Certificate (as defined in that certain Custodial Agreement dated as of July __, 2005, 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 July __, 2005, among Seller and Buyer (the "Agreement"). 4. On the applicable Purchase Date, in the event that Buyer fails to enter into a Transaction with Seller with respect to the Transaction Assets identified in the related Custodial Identification Certificate, Buyer 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 Asset Files with respect to E-1 the Transaction Assets identified therein to Seller. Upon receipt of such Facsimile Authorization, the Bailee shall release the Asset Files to Seller in accordance with Seller's instructions. 5. Following the Purchase Date, Bailee shall forward the Asset Files to Deutsche Bank Trust Company Americas, 1761 East St. Andrew Place, Santa Ana, California 92705, Attention: Mortgage Custody-[_________________] (the "Custodian") by insured overnight courier for receipt by Custodian no later than 12:00 p.m. on the third Business Day following the applicable Purchase Date (the "Delivery Date"). 6. From and after the applicable Purchase Date until the time of receipt of the Facsimile Authorization or the applicable Delivery Date, as applicable, Bailee (a) shall maintain continuous custody and control of the related Asset Files as bailee for Buyer and (b) is holding the related Loan Assets as sole and exclusive bailee for Buyer unless and until otherwise instructed in writing by Buyer. 7. Seller agrees to indemnify and hold 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 Bailee) were imposed on, incurred by or asserted against Bailee because of the breach by Bailee of its obligations hereunder, which breach was caused by negligence, lack of good faith or willful misconduct on the part of 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 Bailee fails to produce a Transaction Asset Note, assignment of collateral or any other document related to a Transaction Asset that was in its possession within ten (10) business days after required or requested by Seller or Buyer (a "Delivery Failure"), the Bailee shall indemnify Seller or Buyer in accordance with the succeeding paragraph of this Section 8. (b) Bailee agrees to indemnify and hold 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 Bailee's negligence, lack of good faith or willful misconduct. The foregoing indemnification shall survive any termination or assignment of this Bailee Agreement. 9. Seller hereby represents, warrants and covenants that Bailee is not an affiliate of or otherwise controlled by Seller. Notwithstanding the foregoing, the parties hereby acknowledge that Bailee hereunder may act as Counsel to Seller in connection with a proposed loan and Paul, Hastings, Janofsky & Walker LLP, if acting as Bailee, has represented Seller in connection with negotiation, execution and delivery of the Agreement. 10. In connection with a pledge of the Transaction Assets as collateral for an obligation of Buyer, Buyer may pledge its interest in the corresponding Asset Files held by Bailee for the benefit of Buyer from time to time by delivering written notice to Bailee that Buyer has pledged its interest in the identified Transaction Assets and Asset Files, together with the identity of the party to whom the Transaction Assets have been pledged (such party, the "Pledgee"). Upon receipt of such notice from E-2 Buyer, Bailee shall mark its records to reflect the pledge of the Transaction Assets by Buyer to the Pledgee. Bailee's records shall reflect the pledge of the Transaction Assets by Buyer to the Pledgee until such time as the Bailee receives written instructions from Buyer that the Transaction Assets are no longer pledged by Buyer to the Pledgee, at which time the Bailee shall change its records to reflect the release of the pledge of the Loan Assets and that Bailee is holding the Transaction Assets as custodian for, and for the benefit of, 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 5-B to the Custodial Agreement the delivery by Custodian to Bailee of some or all of the Asset File for the purposes set forth in such request, provided that such request shall include an agreement (a "Disposition Agreement") in execution form, among Buyer, Seller and Bailee, providing for the disposition of such Asset File or portion thereof. Upon receipt of the Asset File or such portions thereof, Bailee shall hold the same as sole and exclusive bailee for Buyer until such time as the Asset 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 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 Asset 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 Asset 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 Seller or Bailee without the prior written consent of 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 governed by construed in accordance with the internal laws of the State of New York. 16. Capitalized terms used herein and defined herein shall have the meanings ascribed to them in the Agreement. [SIGNATURES BEGIN ON NEXT PAGE] E-3 Very truly yours, [RELEVANT SELLER] Seller By: __________________________ Name: Title: ACCEPTED AND AGREED: PAUL, HASTINGS, JANOFSKY & WALKER LLP, Bailee By: __________________________ Name: ACCEPTED AND AGREED: MORGAN STANLEY BANK, Buyer By: __________________________ Name: Title: E-4 Schedule A [List of Pledged Documents] E-5 Attachment 1 IDENTIFICATION CERTIFICATE On this ____ day of ____________, 200_, ________________________ (the "________"), under that certain Bailee Agreement of even date herewith (the "Bailee Agreement"), among Seller, PAUL, HASTINGS, JANOFSKY & WALKER LLP ("Bailee"), and MORGAN STANLEY BANK, as Buyer, does hereby instruct Bailee to hold, in its capacity as Bailee, the Asset Files with respect to the Transaction Assets listed on Exhibit A hereto, which Transaction Assets 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, Seller has caused this Identification Certificate to be executed and delivered by its duly authorized officer as of the day and year first above written. --------------------------------, Seller By: ______________________________ Name: Title: E-6 Exhibit A to Attachment 1 TRANSACTION ASSET SCHEDULE E-7 Attachment 2 FORM OF BAILEE'S TRUST RECEIPT AND CERTIFICATION ____________, 200_ Morgan Stanley Bank 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 [RELEVANT SELLER] ("Seller"), Morgan Stanley Bank ("Buyer") and Paul, Hastings, Janofsky & Walker LLP ("Bailee") Ladies and Gentlemen: In accordance with the provisions of Paragraph 3 of the above-referenced Bailee Agreement, the undersigned, as Bailee, hereby certifies that as to each Transaction Asset described in the Transaction Asset Schedule (Exhibit A to Attachment 1), a copy of which is attached hereto, it has reviewed the Asset 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 Transaction Asset, and (iii) based on its examination, the foregoing documents on their face satisfy the requirements set forth in Paragraph 2 of the Bailee Agreement. Bailee hereby confirms that it is holding each such Asset File as agent and bailee for the exclusive use and benefit of Buyer 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: E-8 EX-10 4 ex10-3.txt EX. 10.3 Exhibit 10.3 MASTER REPURCHASE AGREEMENT Dated as of August 16, 2005 Between: BEAR, STEARNS FUNDING, INC. and CAPITAL TRUST, INC. APPLICABILITY From time to time the parties hereto may enter into transactions in which Bear, Stearns Funding, Inc. ("Buyer") may, in its sole discretion, agree to purchase Eligible Loans from Capital Trust, Inc. ("Seller"), with a simultaneous agreement by Buyer to transfer to Seller such Eligible Loans at a date certain or on demand of Seller subject to and in accordance with the exercise of Buyer's remedies under this Agreement, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a "Transaction" and shall be governed by this Agreement, as the same shall be amended from time to time. 1. DEFINITIONS "Accelerated Repurchase Date" shall have the meaning set forth in Section 14 of this Agreement. "Accepted Servicing Practices" shall mean with respect to any Purchased Loan, those mortgage or mezzanine loan servicing practices of prudent lending institutions which service loans of the same type as such Purchased Loan in the jurisdiction where the related underlying real estate directly or indirectly securing such Purchased Loan is located. "Act of Insolvency" shall mean with respect to Buyer or Seller, (i) the commencement by such party as debtor of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, or such party seeking the appointment of a receiver, trustee, custodian or similar official for such party or any substantial part of its property, or (ii) the commencement of any such case or proceeding against such party, or another seeking such an appointment, 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, 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 a party of a general assignment for the benefit of creditors, or (iv) the admission in writing by a party of such party's inability to pay such party's debts as they become due. "Additional Loans" shall have the meaning set forth in Section 3(a) of this Agreement. "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 mean this Master Repurchase Agreement dated as of August 16, 2005, by and between Buyer and Seller. "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 an attorney, title company or other closing agent, appointed by Seller and reasonably acceptable to Buyer, who is party to a Bailee Agreement and executes a Trust Receipt in connection with a Table Funded Loan. "Bailee Agreement" shall mean a written agreement between Seller and a Bailee relating to the bailment in connection with Table Funded Loans, naming Buyer as a third party beneficiary and substantially in the form of Exhibit XIII hereto. Trust Receipt" shall mean the trust receipt and certification attached to the form of Bailee Agreement at Exhibit XIII hereto. "Business Day" shall mean a day other than (i) a Saturday or Sunday, or (ii) a day in which the New York Stock Exchange or banks in the State of New York are authorized or obligated by law or executive order to be closed. "Buyer" shall mean Bear, Stearns Funding, Inc., or any successor. "Buyer's Margin Ratio" shall mean, with respect to any Transaction, as of any date, a percentage agreed to by Buyer and Seller or, in the absence of any such agreement, the percentage obtained by dividing the Purchase Price of the Purchased Loans on the Purchase Date by the Market Value on such date for such Transaction. "Collateral" shall have the meaning set forth in Section 5 of this Agreement. 2 "Collection Account" shall mean a segregated interest bearing account established and maintained at the Depository, in the name of and for the benefit of Buyer pursuant to the terms of the Depository Agreement. "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. "Commitment Expiration Date" shall mean August 15, 2008. "Confirmation" shall have the meaning specified in Section 2(b) of this Agreement. "Custodial Agreement" shall mean the Custodial Agreement, dated as of August 16, 2005 among the Custodian, Seller and Buyer, as amended, restated, modified and in effect from time to time. "Custodial Delivery" shall mean the form executed by Seller in order to deliver the Purchased Loan Schedule and the Purchased Loan File to Buyer or its designee (including the Custodian) pursuant to Section 6, a form of which is attached hereto as Exhibit IV. "Custodian" shall mean Deutsche Bank Trust Company Americas or any successor Custodian appointed by Buyer and Seller with the prior written consent of Seller (which consent shall not be unreasonably withheld). "Cut-off Date" shall mean the second Business Day preceding each Remittance Date. "Debt" means, with respect to any Person at any date, all indebtedness or other obligations of such Person in accordance with GAAP excluding any indebtedness secured by the unfunded equity commitments of shareholders. "Default" shall mean any event which, with the giving of notice, the passage of time, or both, would constitute an Event of Default. "Depository" shall mean PNC Bank, National Association or any successor Depository appointed by Seller and approved by Buyer, which approval shall not be unreasonably withheld, conditioned or delayed. "Depository Agreement" shall mean the agreement governing the Collection Account between the Depository and Buyer and Seller and their respective successors and assigns as the same may be modified, amended or supplemented from time to time. "Diligence Materials" shall mean the Preliminary Due Diligence Package together with the Supplemental Due Diligence List. 3 "Direction Letter" shall mean a letter signed by Seller directing the Servicer to send all Income with respect to the Purchased Loans, as well as any payments in respect of associated Hedging Transactions, to the Collection Account held by the Depository within one (1) Business Day of receipt. "Draft Appraisal" shall mean a short form appraisal, "letter opinion of value," or any other form of draft appraisal acceptable to Buyer. "Early Repurchase Date" shall have the meaning specified in Section 2(g) of this Agreement. "EBITDA" shall mean earnings before interest, tax, depreciation and amortization. "Eligible Loans" shall mean any of the following types of loans, which loans shall not provide for any restrictions (other than notice) on transfer to or by Buyer and otherwise are acceptable to Buyer in the exercise of its commercially reasonable business judgment, and are secured directly or indirectly by a property that is a multifamily, retail, office, warehouse, industrial, or hospitality property (or any other property type acceptable to Buyer), is located in the United States of America, its territories or possessions, meet all of the other requirements of this Master Repurchase Agreement, and which would not, if the same became Eligible Loans, cause the aggregate Purchase Price of all Eligible Loans to exceed the Maximum Aggregate Purchase Price: (i) Whole Loans that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person) commercial mortgage loans secured by first liens on multifamily and commercial real property with respect to which the ratio of loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing directly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. (ii) Subordinate interests in Whole Loans ("B Notes") that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person), commercial mortgage loans secured by first liens on multifamily and commercial real property with respect to which the ratio of loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing directly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. 4 (iii) Mezzanine Loans that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person) and with respect to which the ratio of total loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing indirectly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. (iv) any other investment presented to and approved by Buyer in its sole discretion which does not conform to the criteria set forth in clauses (i), (ii) and (iii) above and which Buyer elects in its sole discretion to purchase, in which case the criteria for the ratio of total loan to value and any modifications to the Maximum Aggregate Purchase Price with respect to such loan, shall be set forth in the related Confirmation for the Transaction under which such loan or interest is purchased by Buyer. An Eligible Loan must have the related loan document files segregated and held by the Custodian. Non-performing loans and loans secured by undeveloped land, coop shares and construction loans are not eligible for inclusion as Eligible Loans. "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 to ERISA, as in effect at the date of this Agreement 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 that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which Seller is a member and (ii) solely for purposes of potential liability under Section 302(c)(l1) of ERISA and Section 412(c)(ll) 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 Seller is a member. "Event of Default" shall have the meaning set forth in Section 13 of this Agreement. "Exit Fee" shall have the meaning specified in Section 2(g). "Filings" shall have the meaning specified in Section 5 of this Agreement. "GAAP" shall mean United States generally accepted accounting principles consistently applied as in effect from time to time. "Governmental Authority" shall mean any national or federal government, any state, regional, local or other political subdivision thereof with jurisdiction and any 5 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, with Buyer or its Affiliates as counterparties or one or more other counterparties acceptable to Buyer. "Income" shall mean, with respect to any Eligible Loan at any time, any principal (including any principal prepayments) thereof and all interest, dividends or other distributions thereon and with respect to any associated Hedging Transaction, all proceeds thereof. "Indemnified Amounts" and "Indemnified Parties" shall have the meaning specified in Section 19 of this Agreement. "Intercreditor Agreement" shall mean the agreement between Seller and the holder of the senior co-lender interest (such as a "B" noteholder's interest in an "A/B" loan structure) in a commercial mortgage loan secured by a first lien on multifamily and commercial real property. "LIBOR" shall mean, unless otherwise agreed to by the parties hereto, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) calculated on each Pricing Rate Determination Date for the next Pricing Rate Period as equal to the rate for U.S. dollar deposits for a one month period which appears on Telerate Page 3750 as of 10:00 am, New York City time, on such Pricing Rate Determination Date; provided, however, that if such rate does not appear on Telerate Page 3750, "LIBOR" determined on each Pricing Rate Determination Date for the next Pricing Rate Period shall mean a rate per annum equal to the rate at which U.S. dollar deposits are offered in immediately available funds in the London Interbank Market to the London office of National Westminster Bank, Plc (or its successors) by leading banks in the Eurodollar market at 10:00 a.m., New York City time, on the Pricing Rate Determination Date. "Telerate Page 3750" means the display designated as "Page 3750" on the Associated Press-Dow Jones Telerate Service (or such other page as may replace Page 3750 on the Associated Press-Dow Jones Telerate Service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Banker's Association interest settlement rates for U.S. Dollar deposits). LIBOR determined on the basis of the rate displayed on Telerate Page 3750 in accordance with the provisions hereof shall be subject to corrections, if any, made in such rate and displayed by the Associated Press-Dow Jones Telerate Service within one (1) hour of the time when such rate is first displayed by such Service. 6 "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 LIBOR . "Loan Information" shall mean, with respect to each Purchased Loan, the information substantially in the form set forth in Exhibit VIII attached hereto. "Margin Call" shall have the meaning set forth in Section 3(a) of this Agreement. "Margin Deficit" shall have the meaning set forth in Section 3(a) of this Agreement. "Market Value" shall mean, with respect to any Purchased Loans, as of any relevant date, the market value for such Purchased Loans on such date, as determined by Buyer in the exercise of its commercially reasonable judgment exercised in good faith and may be determined on each Business Day during the term of this Agreement, or less frequently from time to time if Buyer elects in its sole discretion. Any provision hereof to the contrary notwithstanding, a Market Value of zero shall, unless otherwise determined by Buyer in its sole discretion, be assigned to (i) any Purchased Loan that has been delinquent for at least sixty (60) days, (ii) any Purchased Loan released by the Custodian for more than 10 Business Days other than with the consent of Buyer or (iii) any Purchased Loan has become a specially serviced loan as defined in the applicable servicing agreement. "Maximum Aggregate Purchase Price" $75,000,000 outstanding at any one time. "Mezzanine Loan" shall mean a loan secured by pledges of substantially all of the equity ownership interests in entities that own directly or indirectly multifamily and commercial properties. "Mezzanine Loan Documents" shall mean any and all documents required in connection with the financing of a Mezzanine Loan. "Mezzanine Note" shall mean a note evidencing Mezzanine Loan indebtedness. "Modified Debt" shall mean Debt reduced by (i) amounts of liabilities resulting from the sale of participation interests, (ii) liabilities resulting from consolidation of Debt associated with securitizations where Seller has no recourse obligation for the Debt and (iii) liabilities resulting from the consolidation of vehicles managed by Seller or a Subsidiary of Seller where Seller has less than a 50% equity interest. "Moody's" shall mean Moody's Investor Service, Inc. or any successor thereto. "Mortgage" shall mean a mortgage, deed of trust, deed to secure debt or other instrument, creating a valid and enforceable first priority lien on or a first priority ownership interest in an estate in fee simple in real property or a financeable leasehold interest in real property, and in each case, the improvements thereon, securing a mortgage note or similar evidence of indebtedness. 7 "Mortgage Note" shall mean a note or other evidence of indebtedness of a Mortgagor secured by a Mortgage. "Mortgagor" shall mean the obligor on a Mortgage Note and the grantor of the related Mortgage. "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been, or were required to have been, made by Seller or any ERISA Affiliate and which is covered by Title IV of ERISA. "Net Worth" means with respect to any Person at any date, the excess of the total assets over total liabilities of such Person on such date, each to be determined in accordance with GAAP consistent with those applied in the preparation of the most recent audited financial statements. "New Loan" shall mean any loan that Seller proposes to be included as an Eligible Loan. "Originated Loan" shall mean any loan that is an Eligible Loan and whose Purchased Loan Documents were prepared by or on behalf of Seller or Buyer. "Outstanding Purchase Price" shall mean, with respect to any Transaction, the original Purchase Price reduced by all principal payments and paydowns received by Buyer (other than payments with respect to accrued Price Differential) and plus any additional amounts advanced by Buyer with respect to the related Eligible Loans. "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 by Seller or any ERISA Affiliate during the five year period ended prior to the date of this 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 this 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, other than a Multiemployer Plan. "Pre-Existing Loan" 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, a summary memorandum outlining the proposed transaction, including potential transaction benefits and material underwriting risks, all Underwriting Issues and all other characteristics of the proposed transaction that a reasonable buyer would consider material, together with due diligence information relating to the New Loan to be provided by Seller to Buyer pursuant to this Agreement, including, but not limited to: 8 With respect to each Eligible Loan: (i) the Loan Information; (ii) description of the property or properties; (iii) description of the borrower, including experience with other projects (real estate owned) and net worth and liquidity statements if available. In the event that such statements are not available, evidence of the credit strength of the borrower acceptable to Buyer; (iv) description of the ownership structure of the borrower (including, without limitation, independent director(s)/member(s)); (v) term sheet outlining the transaction generally, including description of existing or proposed senior debt; (vi) debt service coverage and loan to value ratios; (vii) Seller's relationship with the Borrower, if any; (viii) with respect to any New Loan that is a Pre-Existing Loan, a list that specifically and expressly identifies any Purchased Loan Documents that relate to such New Loan but are not in Seller's possession; (ix) any exceptions to the representations and warranties set forth in Exhibit VI or Exhibit VII to this Agreement; (x) asset summary books which include, to the extent provided to Seller, the following: (A) loan detail and asset description, including market information on competing properties, terrorism and other insurance coverage; (B) map, photo; (C) current rent roll; (D) historical, current and pro forma cash flow and operating information; (E) appraisal, environmental, engineering summary; (F) information relating to valuation, security or underwriting issues, special or unique loan features and structural issues; (xi) Securitization Documents and Intercreditor Agreements, if any; 9 (xii) legal opinions delivered with respect to the Eligible Loan in Seller's possession; and (xiii) closing binder in respect of the Purchased Loan (or if not yet prepared, an execution copy of the loan agreement). "Price Differential" shall mean, 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 Outstanding 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 Repurchase Date (reduced by any amount of such Price Differential previously paid by Seller to Buyer with respect to such Transaction). "Pricing Rate" shall mean, for any Pricing Rate Period with respect to any Transaction, an annual rate equal to LIBOR for such Pricing Rate Period plus the relevant spread for such Transaction as determined pursuant to the Side Letter and indicated on the applicable Confirmation. "Pricing Rate Determination Date" shall mean in the case of the first Pricing Rate Period with respect to any Transaction, the first day on which the Pricing Rate Period begins. "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 month in which the Purchase Date occurs and (b) in the case of any subsequent Pricing Rate Period, the period commencing on the first calendar day of each month and ending on and including the last calendar day of such month; provided, however, that in no event shall any Pricing Rate Period end subsequent to the Repurchase Date. "Principal Payment" shall mean, with respect to any Purchased Loans, any payment or prepayment of principal or any proceeds of redemption which are applied to principal and received by the Depository in respect thereof. "Property" shall mean the real property securing repayment of the debt evidenced by a Mortgage Note. "Purchase Agreement" shall mean the agreement pursuant to which Seller acquired the Purchased Loan. "Purchase Date" shall mean the date on which Eligible Loans are to be transferred by Seller to Buyer. "Purchase Fee" shall have the meaning specified in Section 2(e). 10 "Purchase Price" shall mean, with respect to any Purchased Loans, the price at which such Purchased Loans are sold by Seller to Buyer on the applicable Purchase Date as set forth in the Side Letter or the Confirmation, as applicable. "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 6(b), together with any additional documents and information required to be delivered to Buyer or its designee (including the Custodian) pursuant to this Agreement. "Purchased Loan Schedule" shall mean a schedule of Purchased Loans attached to each Trust Receipt and Custodial Delivery containing information substantially similar to the Loan Information. "Purchased Loans" shall mean (i) with respect to any Transaction, the Eligible Loans sold by Seller to Buyer in such Transaction until such Eligible Loans are repurchased by Seller pursuant to this Agreement and (ii) with respect to the Transactions in general, all Eligible Loans sold by Seller to Buyer and any Additional Loans delivered by Seller to Buyer pursuant to Section 3(a) of this Agreement until (x) such Eligible Loans are repurchased by Seller pursuant to this Agreement or (y) such Additional Loans are re-delivered to Seller by Buyer pursuant to Section 3 of this Agreement. "Remittance Date" shall mean the eleventh (11th) calendar day of each month, or the next succeeding Business Day, if such calendar day shall not be a Business Day or such other day of the month as shall be agreed upon by both Buyer and Seller. "Repurchase Date" shall mean the date on which Seller is to repurchase the Purchased Loans from Buyer, which shall be the date specified in the related Confirmation or determined by application of the provisions hereof. "Repurchase Price" shall mean, with respect to any Purchased Loans as of any date, the price at which such Purchased Loans are 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 Outstanding Purchase Price of such Purchased Loans and the accrued but unpaid Price Differential with respect to such Purchased Loans as of the date of such determination. "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. "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. 11 "Securitization Document" shall mean, with respect to any Eligible Loans, any pooling and servicing agreement or other agreement governing the issuance and administration of such Eligible Loan. "Seller" shall mean Capital Trust, Inc., a Maryland corporation. "Servicing Agreement" has the meaning specified in Section 21(b). "Servicing Records" has the meaning specified in Section 21(b). "Side Letter" shall mean the letter dated as of August 16, 2005, by and between Buyer and Seller, relating to the pricing of Transactions hereunder. "Standard & Poor's" shall mean Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. "Subsidiary" shall mean, with respect to Seller, an entity that is wholly owned or controlled by Seller but excluding any vehicles where Seller has less than a 50% equity interest. "Supplemental Due Diligence List" shall mean, with respect to any New Loans, information or deliveries concerning the New Loans that Buyer shall reasonably request in addition to the Preliminary Due Diligence Package. "Survey" shall mean a certified ALTA/ACSM (or applicable state standards for the state in which the Eligible Loans are located) survey of a Property prepared by a registered independent surveyor and in form and content satisfactory to Buyer and the company issuing the Title Policy for such Property. "Table Funded Loan" shall mean a Purchased Loan, designated in the related Confirmation as a Table Funded Loan, where the Purchased Loan File is in the custody of the Bailee or enroute to the Custodian. "Title Policy" shall have the meaning specified in paragraph 8 of the first section of Exhibit VI. "Transaction Conditions Precedent" shall have the meaning specified in Section 2(b) of this Agreement. "Transaction Documents" shall mean, collectively, this Agreement, the Custodial Agreement, the Servicing Agreement, the Side Letter and all Confirmations executed pursuant to this Agreement in connection with specific Transactions. "Trust Receipt" shall mean a trust receipt issued by Custodian to Buyer confirming the Custodian's possession of certain Purchased Loan Files which are the property of and held by Custodian for the benefit of Buyer (or any other holder of such trust receipt). 12 "UCC" shall have the meaning specified in Section 5 of this Agreement. "Underwriting Issues" shall mean, with respect to any New Loans 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 commercially reasonable inquiries and the exercise of commercially reasonable care and diligence under the circumstances, 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 Purchased Loan Document(s)), to a commercially reasonable institutional Buyer in determining whether to originate or acquire the New Loans in question. "Whole Loan" shall mean a commercial mortgage loan or note secured by a first lien on multifamily and commercial real property. 2. INITIATION; CONFIRMATION; REVOLVING TRANSACTIONS; TERMINATION; FEES (a) On or after the date hereof and prior to the Commitment Expiration Date and subject to the terms and conditions set forth in this Agreement (including, without limitation, the "Transaction Conditions Precedent" specified in Section 2(b) of this Agreement), an agreement to enter into a Transaction shall be made in writing at the initiation of Seller as provided below; provided, however, that entering into any Transaction shall be in Buyer's sole and absolute discretion and that the aggregate Repurchase Price (excluding the Price Differential with respect to the Purchased Loans as of the date of determination) for all Transactions shall not exceed the Maximum Aggregate Purchase Price. Seller shall give Buyer written notice of each proposed Transaction and Buyer shall inform Seller of its determination with respect to any assets proposed to be sold to Buyer by Seller solely in accordance with Exhibit IX attached hereto. Buyer shall have the right to review all Eligible Loans proposed to be sold to Buyer in any Transaction and to conduct, at its own expense, its own due diligence investigation of such Eligible Loans as Buyer determines. Upon receipt of all Diligence Materials and other required documentation, Buyer shall complete its due diligence review and financial modeling with respect to the assets proposed to be sold to Buyer by Seller. Buyer shall be entitled to make a determination, in the exercise of its sole discretion, that it shall not purchase any or all of the assets proposed to be sold to Buyer by Seller, such determination to be made in accordance with Exhibit IX attached hereto. On the Purchase Date for the Transaction which shall be not less than one (1) Business Day following the approval of an Eligible Loan by Buyer in accordance with Exhibit IX hereto, the Purchased Loans shall be transferred to Buyer or its agent against the transfer of the Purchase Price in immediately available funds to an account designated by Seller. To the extent Buyer enters into a Transaction with Seller with respect to a Purchased Loan which is an Eligible Loan of the type described in Clause (iv) of the definition thereof (i.e., such Eligible Loan does not satisfy the characteristics described in clauses (i)-(iii) of the definition thereof), then such loan shall be deemed to be an Eligible Loan for all purposes of this Agreement. (b) Upon agreeing to enter into a Transaction hereunder, provided each of the Transaction Conditions Precedent (as hereinafter defined) shall have been satisfied (or waived by 13 Buyer), Buyer shall promptly deliver to Seller a written confirmation substantially in the form of Exhibit I attached hereto of each Transaction (a "Confirmation"). In the absence of execution and delivery by Buyer of a Confirmation for a proposed Transaction, Buyer shall under no circumstance be deemed to have agreed to enter into such Transaction. Such Confirmation shall describe the Purchased Loan(s) (and, in this connection, shall set forth (a) the name of the borrower with respect to the related Purchased Loan, (b) a description (including the date) of the loan agreement or other document, agreement or instrument pursuant to which the related Purchased Loan is made or governed, and (c) the initial or then outstanding principal amount of the related Purchased Loan) which shall be the subject of the proposed Transaction, shall identify Buyer and Seller, and shall set forth (i) the Purchase Date, (ii) the Purchase Price for such Purchased Loan(s), (iii) the Repurchase Date, (iv) the Pricing Rate applicable to the Transaction and (v) any additional terms or conditions not inconsistent with this 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 Side Letter, 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. For purposes of this Section 2(b), the "Transaction Conditions Precedent" shall be deemed to have been satisfied with respect to any proposed Transaction if: (1) no Default or Event of Default under this Agreement shall have occurred and be continuing as of the Purchase Date for such proposed Transaction; (2) Seller shall have certified to Buyer in writing the acquisition cost of such Purchased Loans (including therein reasonable supporting documentation required by Buyer, if any); (3) the representations and warranties made by Seller in any of the Transaction Documents shall be true and correct in respect of the Eligible Loan in question in all material respects as of the Purchase Date for such Transaction; (4) Buyer shall have received the Diligence Materials and completed to Buyer's satisfaction its due diligence review and financial modeling with respect to the assets proposed to be sold to Buyer by Seller; (5) Buyer or the Custodian on behalf of Buyer shall have received the applicable Transaction documents and other documents and opinions specified in Section 6 of this Agreement. The Custodian shall have delivered a trust receipt satisfactory to Buyer no later than 3 p.m. on the Purchase Date; (6) Buyer shall have determined, in accordance with the applicable provisions of Section 2(a) of this Agreement, that the assets proposed to be sold to Buyer by Seller in such Transaction are Eligible Loans; (7) none of the following shall have occurred and be continuing: 14 (i) an event or events shall have occurred resulting in the effective absence of a "securities market" for securities backed by mortgage loans; or (ii) there shall have occurred a material adverse change in the "repo market" or comparable "lending market". If any of the events in this subparagraph (7) shall occur, Buyer agrees to reimburse Seller for the Purchase Fee on a pro rata basis; (8) the purchase by Buyer from Seller of the Purchased Loans shall be completed prior to the Commitment Expiration Date and the aggregate of the Purchase Prices for all Transactions shall not exceed the Maximum Aggregate Purchase Price; and (9) on or prior to the Purchase Date for the initial Transaction hereunder and from time to time thereafter as Buyer shall reasonably request, Seller shall have delivered to Buyer an opinion of Seller's counsel, in form and substance reasonably acceptable to Buyer, addressing the matters set forth at Exhibit XII. Notwithstanding anything to the contrary contained in this Agreement, in no event shall any Transaction hereunder be consummated until such time as Buyer has received all of the following, each in form and substance reasonably satisfactory to Buyer: (i) the fully executed Custodial Agreement and related trust receipt; (ii) a Depository Agreement with respect to the Collection Account executed by the Depository; (iii) such legal opinions as Buyer may reasonably require; (iv) a Direction Letter, (v) Seller's organizational documents, to the extent not delivered as of the date hereof, and (vi) a fully executed Side Letter and the Servicing Agreement. (c) Each Confirmation shall be executed by Seller and Buyer and, together with this Agreement, shall be conclusive evidence of the terms of the Transaction(s) covered thereby. (d) Seller may, at its option so long as an Event of Default shall not have occurred and be continuing, increase or decrease the Outstanding Purchase Price with respect to any Transaction subsequent to the Purchase Date; provided, however, that such action on the part of Seller shall not be permitted if it would create a Margin Deficit. (e) Seller shall pay Buyer on or prior to the initial Purchase Date a one-time, up front amount (the "Purchase Fee") as set forth in the Side Letter. (f) Each Transaction entered into between Buyer and Seller shall remain outstanding from the initial Purchase Date until the earlier of the Repurchase Date or the Commitment Expiration Date. The spread over LIBOR stated in the related Confirmation for each Transaction will not change for such Transaction until August 15, 2008. (g) Seller shall be entitled to terminate a Transaction and repurchase any or all of the Purchased Loans from Buyer on two (2) Business Days' notice on any Business Day prior to the Repurchase Date (an "Early Repurchase Date"). 15 If Seller terminates any Transaction pursuant to the preceding sentence, then, except as provided below, Seller shall pay to Buyer a termination fee (the "Exit Fee") on the Early Repurchase Date. The Exit Fee shall be calculated as the product of (i) the Outstanding Purchase Price and (ii) the following amount: (A) if the Early Repurchase Date is less than one year from the Repurchase Date, 0.05% multiplied by the number of months between the Early Repurchase Date and the Repurchase Date, (B) if the Early Repurchase Date is at least one year but less than two years from the Repurchase Date, 0.75%, and (C) if the Early Repurchase Date is at least two years from the Repurchase Date, 1%. Additionally: (i) No Exit Fee will be payable for the early repurchase of Purchased Loans resulting from (a) the sale of the underlying assets to Buyer, or any of its Affiliates, (b) the sale of the underlying assets to Buyer, or any of its Affiliates, under a Master Repurchase Agreement, (c) the sale of the underlying assets to a securitization vehicle for which Buyer, or any of its Affiliates, are acting in a lead manager role or for which Buyer maintains the books related to the underwriting of such securitization (conventionally known as the "book runner"), (d) maturity of the underlying loan, (e) contractual defaults by either party to the underlying loan documents and agreements, (f) any paydowns, prepayments or defaults on the Purchased Assets, (g) any roll of a Purchased Loan into a new Transaction, (h) pay-offs resulting from a margin call or Market Value calculation dispute between Seller and Buyer including, without limitation, for a Margin Call in accordance with Section 13(x) hereof or (i) Seller's Termination of a Transaction in response to a demand by Buyer pursuant to Section 2(h) hereof. (ii) Additional Purchased Loans acceptable to Buyer may be substituted and no Exit Fee will be payable in connection with such substitutions. No other substitutions will be exempt from payment of the Exit Fee. (iii) All other transactions which result in the reduction of the Repurchase Price, or any other sales of Purchased Loans prior to the Repurchase Date, will be subject to payment of the Exit Fee. Such notice shall set forth the Early Repurchase Date and shall identify with particularity the Purchased Loans to be repurchased on such Early Repurchase Date. (h) If 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 any taxes on Buyer's overall net income); or (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 16 credit by, or any other acquisition of funds by, any office of Buyer which is not otherwise included in the determination of the LIBOR hereunder; and the result of any of the foregoing is to increase the cost to Buyer, by an amount which Buyer deems to be material, 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 promptly pay Buyer, upon its demand, any additional amounts necessary to compensate Buyer for such increased cost or reduced amount receivable which is actually incurred by Buyer. If Buyer becomes entitled to claim any additional amounts pursuant to this Section 2(h), it shall promptly notify Seller of the event by reason of which it has become so entitled. In the event that Seller elects to terminate a Transaction in response to a demand by Buyer pursuant to this Section 2(h), no Exit Fee with respect to such termination shall be due by Seller and the Purchase Fee relating to that Transaction shall be refunded on a pro rata basis. 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 this Agreement and the repurchase by Seller of any or all of the Purchased Loans. (i) If Buyer shall have 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 or shall 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 which is actually incurred by Buyer. 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 this Agreement and the repurchase by Seller of any or all of the Purchased Loans. (j) Any provision hereof to the contrary notwithstanding, Seller shall pay all reasonable fees and expenses of Buyer (including all reasonable legal fees) associated with the purchase of any Eligible Loan under this Agreement and shall pay the fees and expenses of counsel to Buyer in connection with the preparation and execution of this Agreement and all other Transaction Documents. (k) Any provision hereof to the contrary notwithstanding, Transactions entered into hereunder shall be at the sole discretion of Buyer. Buyer is not required to enter into any Transaction and Buyer may, in its sole discretion, reject for inclusion in any Transaction any Eligible Loans offered for sale hereunder by Seller. 17 3. MARGIN MAINTENANCE (a) If at any time the product of the aggregate Market Value of all Purchased Loans and Buyer's Margin Ratio shall be less than the aggregate outstanding Repurchase Price for such Purchased Loans, (a "Margin Deficit"), then Buyer may by notice to Seller (a "Margin Call") require Seller to transfer to Buyer (A) cash or (B) Additional Loans acceptable to Buyer in its sole and absolute discretion (such cash or Additional Loans paid by Seller to Buyer are herein referred to as "Additional Loans"), so that the sum of cash plus the product of (i) the aggregate Market Value of the Purchased Loans and such Additional Loans and (ii) Buyer's Margin Ratio shall at least equal the aggregate outstanding Repurchase Price. Any cash received by Buyer pursuant to a Margin Call shall be applied to reduce the Outstanding Purchase Price. Seller's failure to cure any Margin Deficit as required by the preceding sentence prior to expiration of one (1) Business Day after notice shall constitute an Event of Default under the Transaction Documents and shall entitle Buyer to exercise its remedies under Section 14 of this Agreement (including, without limitation, the liquidation remedy provided for in Section 14(iv) of this Agreement). (b) If any Margin Call is given by Buyer under Section 3(a) of this Agreement, Seller shall transfer cash or Additional Loans as provided in Section 3(a) by no later than one (1) Business Day after the giving of such notice. Notice required pursuant to Section 3(a) of this Agreement may be given by any means, including by telephone, telecopier or telegraphic transmission. The failure of Buyer on any one or more occasions, to exercise its rights under Section 3(a) of this Agreement shall not constitute a waiver of such default or change or alter the terms and conditions to which this Agreement is subject or limit the right of Buyer or Seller to do so at a later date. Buyer and Seller agree that any failure or delay by Buyer to exercise its rights under Section 3(a) of this Agreement shall not limit such party's rights under this Agreement or otherwise existing by law or in any way create additional rights for such party. (c) If at any time the product of the aggregate Market Value of all Purchased Loans and Buyer's Margin Ratio shall be greater than the aggregate outstanding Repurchase Price for such Purchased Loans (a "Margin Excess"), then Seller may by notice to Buyer require Buyer to transfer to Seller (1) cash or (2) Purchased Loans that become subject to this Agreement as Additional Loans so that the product of (i) the aggregate Market Value of the Purchased Loans and such Additional Loans and (ii) Buyer's Margin Ratio shall not exceed the aggregate outstanding Repurchase Price. In no event shall any Purchased Loans that did not become subject to this Agreement in the form of Additional Loans be released from the lien of this Agreement due to a Margin Excess. (d) If any notice is given by Seller under Section 3(c) of this Agreement, Buyer shall transfer cash or Additional Loans as provided in Section 3(c) by no later than one (1) Business Day after the giving of such notice. Notice required pursuant to Section 3(c) of this Agreement may be given by any means, including by telephone, telecopier or telegraphic transmission. Buyer and Seller agree that any failure or delay by Seller on any one or more occasions to exercise its rights under Section 3(c) of this Agreement shall not constitute a waiver of such rights or limit such party's rights under Section 3(c) of this Agreement or otherwise existing by law or in any way create additional rights for such party. In addition, in no event shall Buyer be required to create a Margin Deficit in order to comply with Section 3(d) of this Agreement. 18 (e) Any cash transferred to Buyer pursuant to Section 3(a) of this Agreement shall be used to reduce the Repurchase Price. (f) If any representation or warranty within this Agreement is in fact not accurate, then notwithstanding any of the knowledge qualifiers, Buyer has the right to mark the asset to market with such frequency as deemed prudent in accordance with this Section 3. 4. INCOME PAYMENTS AND PRINCIPAL PAYMENTS (a) The Collection Account shall be established at the Depository concurrently with the execution and delivery of this Agreement by Seller and Buyer. Buyer shall have sole dominion and control over the Collection Account. Seller shall instruct the Servicer to deposit all Income in respect of the Purchased Loans, as well as any payments in respect of associated Hedging Transactions, into the Collection Account within one (1) Business Day of receipt. The amounts on deposit in the Collection Account shall be remitted by the Depository in accordance with the Depository Agreement and the applicable provisions of Sections 4(b), 4(c), 4(d), 4(e) and 16 of this Agreement. Seller shall direct the Servicer to remit all payments to Depository until such time as Buyer directs the borrower otherwise. If any payments are made by the borrower to Seller after the Purchase Date, or in the event that Seller receives any payments in respect of associated Hedging Transactions after the Purchase Date, Seller shall wire such payments to the Collection Account with the Depository within one (1) Business Day of receipt. (b) So long as an Event of Default hereunder shall not have occurred and be continuing and so long as such action would not result in the creation of a Margin Deficit, all Income received by the Depository in respect of the Purchased Loans and the associated Hedging Transactions shall be paid to Seller on the Business Day next following the Business Day on which such funds are deposited in the Collection Account. (c) So long as no Event of Default shall have occurred and be continuing, and in the event that a Margin Deficit exists with respect to the Purchased Loans, then until Seller cures such Margin Deficit, all Income received by the Depository in respect of the Purchased Loans and the associated Hedging Transactions shall be applied by the Depository on the Business Day next following the Business Day on which such funds are deposited in the Collection Account as follows: (i) first, to remit to Buyer an amount equal to the Price Differential which has accrued and is outstanding in respect of all of the Purchased Loans as of such Business Day; (ii) second, to transfer cash to Buyer, so that the product of the aggregate Market Value of the Purchased Loans (including any Additional Loans) and Buyer's Margin Ratio will at least equal the aggregate Outstanding Purchase Price; and (iii) third, to remit to Seller the remainder, if any. (d) If an Event of Default shall have occurred and be continuing, all Income (including all Principal Payments) received by the Depository in respect of the Purchased Loans 19 and the associated Hedging Transactions shall be applied by the Depository on the Business Day next following the Business Day on which such funds are deposited in the Collection Account as follows: (i) first, to remit to Buyer an amount equal to the Price Differential which has accrued and is outstanding in respect of all of the Purchased Loans as of such Business Day; (ii) second, to make a payment to Buyer on account of the Outstanding Purchase Price of the Purchased Loans until the Outstanding Purchase Price for all of the Purchased Loans has been reduced to zero; and (iii) third, to remit to Buyer an amount equal to any costs or expenses due and owing by Seller as of such Business Day; and (iv) fourth, to remit to Seller the remainder. (e) Buyer is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all amounts held by Buyer against any other obligations at any time owing to Buyer, or an Affiliate of Buyer to or for the credit or the account of Seller or a Subsidiary of Seller against any of or all the obligations of Seller now or hereafter existing under this Agreement irrespective of whether or not Buyer shall have made any demand under this Agreement (and without prior notice to Seller) and although such obligations may be unmatured, whereupon such obligations owing by Buyer or its Affiliates to Seller or its Subsidiaries shall, to the extent (and only to the extent) of such set off actually made by Buyer, be discharged. The rights of Buyer under this Section are in addition to other rights and remedies (including other rights of setoff) which Buyer may have. 5. SECURITY INTEREST Buyer and Seller intend that all Transactions hereunder be sales to Buyer of the Purchased Loans and not loans from Buyer to Seller secured by the Purchased Loans. However, in the event any such Transaction is deemed to be a loan, Seller hereby pledges all of its right, title, and interest in, to and under and grants a first priority lien on, and security interest in, all of the following property, whether now owned or hereafter acquired, now existing or hereafter created and wherever located (collectively, the "Collateral") to Buyer to secure the payment and performance of all amounts or obligations owing to Buyer pursuant to this Agreement and the related documents described herein: (a) the Purchased Loans, including those identified in the Confirmations, Servicing Agreements, Servicing Records, Hedging Transactions, insurance relating to the Purchased Loans, and all "deposit accounts" (as defined in the UCC, including, without limitation, collection and escrow accounts) relating to the Purchased Loans; (b) the Collection Account and all monies from time to time on deposit in the Collection Account; 20 (c) all "general intangibles" (including "payment intangibles"), "accounts," "chattel paper," "documents" and "instruments" as defined in the UCC relating to or constituting any and all of the foregoing; (d) all "supporting obligations" and "letter of credit rights" as defined in the UCC relating to or constituting any and all of the foregoing; (e) all replacements, substitutions or distributions on or proceeds, payments, Income and profits of, tort claims, insurance claims and other rights to payments, and records (but excluding any financial models or other proprietary information) and files relating to any and all of any of the foregoing; and (f) all proceeds of the foregoing. Buyer's security interest in the Collateral shall terminate only upon termination of a Transaction with respect to such Collateral under this Agreement and the documents delivered in connection herewith and therewith. For purposes of the grant of the security interest pursuant to this Section 5 of this Agreement, this Agreement shall be deemed to constitute a security agreement under the Uniform Commercial Code as in effect in any applicable jurisdiction (the "UCC"). Buyer shall have all of the rights and may exercise all of the remedies of a secured creditor under the UCC and the other laws of any applicable jurisdiction, including the State of New York. In furtherance of the foregoing, (i) Buyer 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 this Section 5 (i) a UCC financing statement in the form of Schedule 1-A attached hereto (to be filed in the filing office indicated therein), (ii) amendments to such UCC financing statement in the form of Schedule 1-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 and, in each case, continuation statements and any amendments thereto (collectively, the "Filings"), and shall forward copies of such Filings to Seller 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 the payments of any fees and taxes required in connection with the execution and delivery of the Agreement). 6. PAYMENT, TRANSFER AND CUSTODY (a) On the Purchase Date for each Transaction, ownership of the Purchased Loans shall be transferred to Buyer or its designee (including the Custodian) against the simultaneous transfer of the Purchase Price in immediately available funds to an account of Seller specified in 21 the Confirmation relating to such Transaction. Buyer shall have the right to request Seller to provide an officer's certificate of Seller with respect to any copy of a document required to be delivered certifying that to its knowledge such represents a true and correct copy of the original. (b) On or before each Purchase Date, Seller shall deliver or cause to be delivered to Buyer or its designee the Custodial Delivery in the form attached hereto as Exhibit IV. In connection with each sale, transfer, conveyance and assignment of a Purchased Loan, on or prior to each Purchase Date with respect to such Purchased Loan, Seller shall deliver or cause to be delivered and released to the Custodian the following original documents (collectively, the "Purchased Loan File"), pertaining to each of the Purchased Loans identified in the Custodial Delivery delivered therewith: With respect to each Purchased Loan which is a Whole Loan or with respect to a B Note a copy of the documents in (ii) - (xxiii) below to the extent the same exist and are available to Seller. (i) 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]"). (ii) A copy of any guarantee executed in connection with the Mortgage Note (if any) together with an officer's certificate of Seller certifying that such represents a true and correct copy of the original. (iii) A copy of the 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 Property is located. (iv) Copies 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 Property is located. (v) The original Assignment of Mortgage, in blank, for each Purchased Loan secured by a Mortgage, in form and substance acceptable for recording and signed in the name of the Last Endorsee (in the event that such 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 22 predecessor]"; in the event that such 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]"). (vi) Copies 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 Property is located. (vii) Copies of any 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 together with an officer's certificate of Seller certifying that such represent true and correct copies of the originals. (viii) A copy of any security agreement, chattel mortgage or equivalent document executed in connection with the Purchased Loan together with an officer's certificate of Seller certifying that such represent true and correct copies of the originals. (ix) A copy of any assignment of leases and rents, 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 Property is located. (x) Copies of all intervening assignments of assignment of leases and rents, if any, or copies thereof, with evidence of recording thereon. (xi) 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 from Seller to Buyer or its designee, which UCC assignments shall be in form and substance acceptable for filing. (xii) A copy of any environmental indemnity agreement (if any). (xiii) A copy of any omnibus assignment in blank (if any). (xiv) A copy of the disbursement letter from the Mortgagor to the original mortgagee (if any). (xv) A copy of the Mortgagor's certificate or title affidavit (if any). (xvi) A survey of the Property (if any) as accepted by the title company for issuance of the Title Policy and a copy of the Title Policy. 23 (xvii) A copy of the Mortgagor's opinion of counsel (if any). (xviii) A copy of any assignment of permits, contracts and agreements (if any). (xix) A copy of any assignment of any interest rate cap agreement or other interest rate protection agreement entered into by the Mortgagor or its affiliates. (xx) A copy of the fully executed intercreditor agreement or any other agreement that allocates assets among the parties, if any. (xxi) A copy of any estoppel letter from the mortgagor. (xxii) A copy of any executed servicing agreement. (xxiii) A copy of the Purchase Agreement. (xxiv) A copy of any loan agreement. (xxv) any other documents or instruments necessary in the reasonable opinion of Buyer to consummate the sale of such Purchased Loan to Buyer subject to the terms of this Agreement or required to be delivered pursuant to the terms of this Agreement, or, if such Transaction is recharacterized as a secured financing, to create and perfect in favor of Buyer a valid perfected first priority security interest in such Purchased Loan. With respect to each Purchased Loan which is a Mezzanine Loan: (i) 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]"). (ii) The original of the loan agreement and the guarantee, if any, executed in connection with the Purchased Loan. (iii) The original intercreditor or loan coordination agreement, if any, executed in connection with the Purchased Loan. (iv) The original security agreement executed in connection with the Purchased Loan. 24 (v) Copies of all documents relating to the formation and organization of the borrower of such Purchased Loan, together with all consents and resolutions delivered in connection with such borrower's obtaining the Purchased Loan. (vi) All other 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. (vii) The assignment of Purchased Loan (in blank) sufficient to transfer to Buyer all of Seller's rights, title and interest in and to the Purchased Loan. (viii) A copy of the borrower's opinion of counsel (if any). (ix) 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 from Seller to Buyer or its designee, which UCC assignments shall be in form and substance acceptable for filing. (x) The pledge agreement and original certificates representing the pledged equity interests (if any). (xi) Stock powers relating to each pledged equity interest, executed in blank, if an original stock certificate is provided. (xii) Assignment of any management agreements, agreements among equity interest holders or other material contracts. (xiii) If no original stock certificate is provided, evidence satisfactory to Buyer that the pledged ownership interests have been transferred to, or otherwise made subject to a first priority security interest in favor of, Seller. (xiv) Copies of all loan documents and related closing documents pertaining to the closing of the senior indebtedness incurred or owed by the owner of the real property with respect to which the borrower of the Mezzanine Loan has pledged its ownership interests, whether directly or indirectly through intermediate entities, including without limitation the organizational documents of such owner together with an officer's certificate of Seller certifying that such represent true and correct copies of the originals. (xv) An assignment of any interest rate cap agreement or other interest rate protection agreement entered into by the borrower under the Purchased Loan or its affiliates with respect to the Purchased Loan. 25 (xvi) the original servicing agreement, if any, executed in connection with the Purchased Loan. (xvii) A copy of the Purchase Agreement. (xviii) A copy of the borrower's fee title insurance policy in respect of the mezzanine loan and a copy of the related survey. 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 this Section 6(b) of this Agreement which is determined by Buyer to be necessary to effectuate the sale, transfer, conveyance and assignment of such Purchased Loan subject to the terms of this Agreement. In addition, with respect to each Purchased Loan, Seller shall deliver an instruction letter from Seller to the servicer with respect to such Purchased Loan, instructing the servicer to remit all sums required to be remitted to the holder of such Purchased Loan under the loan documents to the Depository for deposit in the Collection Account. 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 this Agreement, and upon receipt of any such other documents, the Custodian shall hold such other documents 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 V attached hereto irrevocably appointing Buyer its attorney-in-fact with full power, after the occurrence and during the continuation of an Event of Default to (i) complete and record the Assignment of Mortgage, (ii) complete the endorsement of the Mortgage Note or Mezzanine Note and (iii) take such other steps as may be necessary or desirable to enforce Buyer's rights against such Purchased Loans and the related Purchased Loan Files and the Servicing Records, Buyer shall deposit the Purchased Loan Files representing the Purchased Loans, or direct that the Purchased Loan Files be deposited directly, with the Custodian. 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 sale of the related Purchased Loan to Buyer. Seller or its designee (including the Custodian) shall release its custody of the Purchased 26 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. (c) Notwithstanding the provisions of Section 6(b) above requiring the execution of the Custodial Delivery and corresponding delivery of the Purchased Loan File to the Custodian on or prior to the related Purchase Date, with respect to each Transaction involving a Purchased Loan which is identified in the related Confirmation as a Table Funded Loan, Seller shall, in lieu of effectuating the delivery of all or a portion of the Purchased Loan File on or prior to the related Purchase Date, (i) deliver the Purchased Loan File (or the portion thereof not then delivered to the Custodian) to Buyer on or prior to the Purchase Date by means of delivery of the same to the Bailee, (ii) cause the Bailee to deliver to Seller, Buyer and the Custodian by facsimile on or before the related Purchase Date for the Transaction (A) a fully executed Bailee Agreement and Trust Receipt issued by the Bailee thereunder, (B) the promissory note(s) in favor of Seller evidencing the making of the Purchased Loan, with Seller's endorsement of such note to Buyer or original stock certificate (if certificated), (C) such other components of the Purchased Loan File as Buyer may require on a case by case basis with respect to the particular Transaction and (D) evidence satisfactory to Buyer that all documents necessary to perfect Seller's (and, by means of assignment to Buyer on the Purchase Date, Buyer's) interest in the Collateral for the Purchased Loan, and (iii) not later than the third (3rd) Business Day following the Purchase Date, deliver to Buyer the Custodial Delivery and to the Custodian the entire Purchased Loan File. (d) Unless an Event of Default shall have occurred and be continuing, Seller shall exercise all voting, corporate and servicing rights with respect to the Purchased Loans. Upon the occurrence and during the continuation of an Event of Default, Buyer shall be entitled to exercise all voting and corporate rights with respect to the Purchased Loans without regard to Seller's instructions (including, but not limited to, if an Act of Insolvency shall occur with respect to Seller, to the extent Seller controls or is entitled to control selection of the special servicer, Buyer may transfer such special servicing to an entity satisfactory to Buyer). 7. SALE, TRANSFER, HYPOTHECATION OR PLEDGE OF PURCHASED LOANS (a) Title to all Purchased Loans shall pass to Buyer on the applicable Purchase Date, and Buyer shall have free and unrestricted use of all Purchased Loans. Nothing in this Agreement or any other Transaction Document shall preclude Buyer from engaging in repurchase or financing transactions with the Purchased Loans or otherwise selling, transferring, pledging, repledging, hypothecating, or rehypothecating the Purchased Loans, but no such transaction shall relieve Buyer of its obligations to transfer the Purchased Loans to Seller pursuant to Sections 2 or 11 of this Agreement or of Buyer's obligation to credit or pay Income to, or apply Income to the obligations of, Seller pursuant to Section 4 hereof. (b) Nothing contained in this Agreement or any other Transaction Document shall obligate Buyer to segregate any Purchased Loans delivered to Buyer by Seller. Notwithstanding anything to the contrary in this Agreement or any other Transaction Document, no Purchased Loan shall remain in the custody of Seller or a Subsidiary of Seller. 27 8. SUBSTITUTION; SEGREGATION OF DOCUMENTS RELATING TO ELIGIBLE LOANS (a) Substitution of Eligible Loans is subject to satisfaction of the conditions to the acquisition of the Purchased Loans. (b) All documents relating to Purchased Loans in the possession of Seller shall be segregated from other documents and securities in its possession and shall be identified as being subject to this Agreement. 9. REPRESENTATIONS (a) Buyer and Seller each represents and warrants, and shall on and as of the Purchase Date of any Transaction be deemed to represent and warrant, to the other that: (i) it is duly authorized to execute and deliver this Agreement, to enter into the 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 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, by-law or rule applicable to it or any agreement by which it is bound or by which any of its assets are affected. (b) Seller represents and warrants to Buyer that as of the Purchase Date for the purchase of any Purchased Loans by Buyer from Seller and any Transaction thereunder and as of the date of this Agreement and at all times while this Agreement and any Transaction thereunder is in full force and effect: (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. 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 28 power to execute, deliver, and perform its obligations under this 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. 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 conflict with or result in a breach of any of the terms, conditions or provisions of (i) the formation, organizational or other governing documents of Seller, (ii) any contractual obligation to which such party is now a party or the rights under which have been assigned to such party or the obligations under which have been assumed by such party or to which the assets of such party are subject or constitute a default thereunder, or result thereunder in the creation or imposition of any lien upon any of the assets of such party, other than pursuant to the Transaction Documents, (iii) any judgment or order, writ, injunction, decree or demand of any court applicable to such party, or (iv) any applicable Requirement of Law. Seller has all necessary licenses, permits and other consents from Governmental Authorities necessary to acquire, own and sell the Purchased Loans and for the performance of its obligations under the Transaction Documents. (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, nor is there any action, suit, proceeding, investigation, or arbitration pending or, to the best knowledge of Seller, threatened against Seller which may result in any material adverse change in the business, operations, financial condition, properties, or assets of Seller, or which may have an adverse effect on the validity of the Transaction Documents or the Purchased Loans 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 Purchased Loans pursuant to any of the Transaction Documents. 29 (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, encumbrance or impediment to transfer (including any "adverse claim" as defined in Section 8-102(a)(l) of the UCC), and Seller is the record and beneficial owner of and has good and marketable title to and 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 free of any adverse claim (other than any adverse claims or liens created by Buyer). In the event the related Transaction is recharacterized as a secured financing of the Purchased Loans, the provisions of this 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 Buyer shall have a valid, perfected first priority security interest in the Purchased Loans. (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 each Purchase Date for a Transaction conform to the applicable representations and warranties set forth in Exhibit VI or Exhibit VII attached hereto, except as disclosed to Buyer in writing prior to the related Purchase Date for the Transaction in which such Purchased Loan is purchased by Buyer; provided, however, that Seller does not make the representations and warranties set forth in Exhibit VI or Exhibit VII with respect to any Purchased Loan originated by Buyer or any of its Affiliates. It is understood and agreed that the representations and warranties set forth in Exhibit VI or Exhibit VII 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 this Agreement and the Custodial Agreement for such Purchased Loan have been delivered to Buyer or the Custodian on its behalf. 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. Any provision hereof to the contrary notwithstanding, Buyer's remedy for a breach of this representation and warranty with respect to any Purchased Loan shall be to mark such Purchased Loan to market; provided, however, that in the event that a breach of this representation and warranty causes a breach of some other covenant of Seller hereunder (such as to maintain adequate margin), then Buyer shall be entitled to exercise all rights and remedies granted to it hereunder. (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 30 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. (x) Consents. No consent, approval or other action of, or filing by Seller with, any Governmental Authority or any other Person is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of any of the Transaction Documents (other than consents, approvals and filings that have been obtained or made, as applicable). (xi) Ownership. Seller is a publicly held corporation. (xii) Organizational Documents. Seller has delivered to Buyer certified copies of its formation, organizational and other governing documents, together with all amendments thereto. (xiii) 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 Loans. (xiv) 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 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. (xv) Taxes. Seller has filed or caused to be filed all tax returns which to the knowledge of Seller would be delinquent if they had not been filed on or before the date hereof and has paid all taxes shown to be due and payable on or before the date hereof on such returns or on any assessments made against it or any of its property 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. (xvi) ERISA. Seller does not have any Plans. (xvii) Judgments/Bankruptcy. Except as disclosed in writing to Buyer, there are no judgments in excess of $10,000,000 against Seller 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. 31 (xviii) 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 to Seller's knowledge 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. (xix) Financial Information. All financial data concerning Seller and to Seller's knowledge 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 to Seller's knowledge 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. (xx) Chief Executive Office. On the date of this Agreement, Seller's chief executive office and principal place of business is located at 410 Park Avenue, 14th Floor, New York, New York 10022. The location where Seller keeps its books and records, including all computer tapes and records relating to the Eligible Loans is its chief executive office. (xxi) Purchase Agreement Representations and Warranties. Seller has provided Buyer with a copy of the Purchase Agreement (to the extent applicable) containing representations and warranties made to Seller by the party designated as seller under such Purchase Agreement. (xxii) Loan to Value Ratio. The combined loan to value ratio of any Purchased Loan and any senior liens on a related Property shall not at any time exceed the requirements set forth in the Side Letter. (c) On the Purchase Date for any Transaction, Seller shall be deemed to have made all of the representations set forth in Section 9(b) of this Agreement as of such Purchase Date. 10. NEGATIVE COVENANTS OF SELLER On and as of the date hereof and each Purchase Date and until this Agreement is no longer in force with respect to any Transaction, Seller shall not without the prior written consent of Buyer: (a) take any action which would directly or indirectly impair or adversely affect Buyer's title to or security interest in 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; 32 (c) create, incur or permit to exist any lien, encumbrance or security interest in or on the Purchased Loans, except as described in Section 5 of this Agreement; (d) consent or assent to any amendment or supplement to, or termination of, any Securitization Document, any note, loan agreement, mortgage or guaranty relating to the Purchased Loans or other material agreement or instrument relating to the Purchased Loans other than in accordance with Section 6(c); (e) use any of the Purchase Price for any Purchased Loan either directly or indirectly to acquire any security, as that term is defined in Regulation T of the Regulations of the Board of Governors of the Federal Reserve System, or take any action that might cause any Transaction to violate any regulation of the Federal Reserve Board; (f) after the occurrence and during the continuation of any Default or Event of Default, make any distribution, payment on account of, or set apart assets for any equity or ownership interest of Seller, or 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 to any equity or ownership interest of Seller, either directly or indirectly, whether in cash or property or in obligations of Seller; provided, that the foregoing shall not restrict Seller from making distributions, from assets other than the Purchased Loans, required to maintain Seller's status under the Code as a real estate investment trust ("REIT") within the meaning of Section 856 through 860 of the Code, in the event Seller then qualifies as a REIT under the Code; or (g) file a UCC financing statement, with respect to a Purchased Loan, or an amendment or termination statement with respect to a UCC financing statement with respect to a Purchased Loan, except as approved by Buyer in each instance. 11. AFFIRMATIVE COVENANTS OF SELLER (a) Seller shall promptly notify Buyer of any material adverse change in its business operations and/or financial condition; provided, however, that nothing in this Section 11 shall relieve Seller of its obligations under this Agreement. (b) Seller shall provide Buyer with copies of such documents as Buyer may reasonably request evidencing the truthfulness of the representations set forth in Section 9. (c) Seller (1) 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 and demands of all Persons (other than security interests by or through Buyer) and (2) shall, at Buyer's request, take all action necessary to ensure that Buyer will have a first priority security interest in the Purchased Loans subject to any of the Transactions in the event such Transactions are recharacterized as secured financings. (d) Seller shall notify Buyer and the Depository of the occurrence of any Default or Event of Default with respect to Seller as soon as possible but in no event later than the second (2nd) Business Day after obtaining actual knowledge of such event. 33 (e) Seller shall promptly (and in any event not later than two (2) Business Days following receipt) deliver to Buyer (i) any notice of the occurrence of an event of default under or report received by or required to be delivered by Seller pursuant to the Securitization Documents; (ii) any notice of transfer of servicing under the Securitization Documents and (iii) any other information with respect to the Purchased Loans as may be reasonably requested by Buyer from time to time. (f) Seller will permit Buyer (at Buyer's cost) or its designated representative to inspect Seller's records with respect to the Purchased Loans and the conduct and operation of its business related thereto upon reasonable prior written notice from Buyer or its designated representative, at such reasonable times and with reasonable frequency, and to make copies of extracts of any and all thereof, subject to the terms of any confidentiality agreement between Buyer and Seller. (g) If Seller shall at any time become entitled to receive or shall receive any rights, whether in addition to, in substitution of, as a conversion of, or in exchange for the Purchased Loans, or otherwise in respect thereof, Seller shall accept the same as Buyer's agent, hold the same in trust for Buyer and deliver the same forthwith to Buyer in the exact form received, duly endorsed by Seller to Buyer, if required, together with an undated bond power covering such certificate duly executed in blank to be held by Buyer hereunder as additional collateral security for the Transactions. If any sums of money or property so paid or distributed in respect of the Purchased Loans shall be received by Seller, Seller shall, until such money or property is paid or delivered to Buyer, hold such money or property for the benefit of Buyer, as additional collateral security for the Transactions. (h) At any time from time to time upon request of Buyer, at the sole expense of Seller, Seller will promptly and duly execute and deliver such further instruments and documents and take such further actions as Buyer may reasonably request for the purposes of obtaining or preserving the full benefits of this Agreement including the first priority security interest granted hereunder and of the rights and powers herein granted (including, among other things, filing such Uniform Commercial Code financing statements as Buyer may reasonably request). If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other instrument, negotiable document, certificated security or chattel paper, such note, instrument, document, security or chattel paper shall be immediately delivered to Buyer, duly endorsed in a manner satisfactory to Buyer, to be held as Collateral pursuant to this Agreement, and the documents delivered in connection herewith. Seller hereby irrevocably authorizes Buyer at any time and from time to time to file in any filing office in any jurisdiction any initial financing statements and amendments thereto that (1) indicate the Collateral (i) as all Purchased Loans, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (2) contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether Seller is an organization, the type of organization and any organization identification number issued to Seller, and (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Seller agrees to furnish any such information to Buyer promptly upon request. Seller also ratifies its authorization for Buyer 34 to have filed in any jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof. (i) Seller shall provide Buyer with the following financial and reporting information: (i) Within 60 days after the last day of the first three fiscal quarters in any fiscal year, Seller's unaudited consolidated statements of income and statements of changes in cash flow for such quarter and balance sheets as of the end of such quarter (which statements and balance sheets shall separately break out the statements of income and changes in cash flow and balance sheets of Seller), in each case presented in Seller's usual form as previously approved by Buyer; (ii) Within 120 days after the last day of its fiscal year, Seller's audited consolidated statements of income and statements of changes in cash flow for such year and balance sheets as of the end of such year (which statements and balance sheets shall separately break out the statements of income and changes in cash flow and balance sheets of Seller), in each case presented in Seller's usual form as previously approved by Buyer; (iii) Within 60 days after the last day of each calendar quarter in any fiscal year, an officer's certificate from Seller addressed to Buyer certifying that, as of such calendar month, (x) Seller is in compliance with all of the terms, conditions and requirements of this Agreement, and (y) no Event of Default exists; (iv) within 60 days after the last day of each calendar month in any fiscal year, any and all property level financial information with respect to the Purchased Loans that is in the possession of Seller or an Affiliate, or such other information as may be mutually determined and agreed upon in writing by both Buyer and Seller, including, without limitation, rent rolls and income statements; and (v) Within 20 days after each month end, a monthly reporting package containing all information set forth on Exhibit III attached hereto. (j) 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. (k) 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. 35 (l) 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 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. (m) Seller shall advise Buyer in writing of the opening of any new chief executive office or the closing of any such office and of any change in Seller's name or the places where the books and records pertaining to the Purchased Loans are held not less than fifteen (15) Business Days prior to taking any such action. (n) Seller will maintain 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. (o) Seller shall provide Buyer with access to operating statements, the occupancy status and other property level information, with respect to the Properties, plus any such additional reports as Buyer may reasonably request. (p) Seller hereby covenants and agrees that all interest and original issue discount received or accrued with respect to the Purchased Loans shall be treated as portfolio interest within the meaning of Sections 871(h) and 881(c) of the Internal Revenue Code, as amended, and no amount will be required to be deducted from any remittance on the Purchased Loans on account of withholding tax or otherwise. (q) Seller shall notify Buyer in writing of any proposed extension or material modification of any Purchased Loan not less than ten (10) Business Days prior to taking any such action and shall reasonably provide Buyer with any documentation required for such Purchased Loan to be modified or extended after any such action has been taken. (r) Seller shall pay all reasonable and actually incurred expenses (including the reasonable fees and expenses of counsel to Buyer) of Buyer in connection with the negotiation and documentation of this Agreement. (s) Seller shall be solely responsible for the fees and expenses of Custodian. 12. [Reserved] 13. EVENTS OF DEFAULT Each of the following shall constitute an "Event of Default" under this Agreement: 36 (i) either (A) the Transaction Documents shall for any reason not cause, or shall cease to cause, Buyer to be the owner free of any adverse claim of any of the Purchased Loans, 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; (ii) in the event that Buyer or any of its Affiliates is a party to any Hedging Transaction and a default or breach occurs thereunder on the part of Seller or any of its Subsidiaries which results in the early termination of such Hedging Transaction or otherwise is not cured within the cure period for such default or breach provided under the terms and conditions of such Hedging Transaction; (iii) failure of Buyer to receive no later than one (1) Business Day following any Remittance Date the accrued, but unpaid Price Differential (less any amount of such Price Differential previously paid by Seller to Buyer) (including, without limitation, in the event the Income paid or distributed on or in respect of the Purchased Loans is insufficient to make such payment and Seller does not make such payment or cause such payment to be made); (iv) failure of Buyer to receive the Repurchase Price for any Purchased Loans on the date the same is due under this Agreement (whether on the Repurchase Date, Early Repurchase Date or otherwise as provided herein); (v) failure of Seller to make any other payment (i.e., a payment of a type not specified in any other clause of this Section 13) owing to Buyer which has become due, whether by acceleration or otherwise under the terms of this Agreement which failure is not remedied within the applicable period in the case of a failure pursuant to Section 3 or three Business Days in the case of any other such failure; (vi) any governmental, regulatory, or self-regulatory authority shall have taken any action to remove, limit, restrict, suspend or terminate the rights, privileges, or operations of Seller, which suspension has a material adverse effect on the financial condition or business operations of Seller, taken as a whole; (vii) Buyer shall have determined, in the exercise of its good faith business judgment, (A) that there has been a material adverse change in the corporate structure with respect to Seller (including, without limitation, any breach of the provisions of Section 12 hereof) or financial condition or creditworthiness, taken as a whole, of Seller; (B) that Seller will not meet or has breached any of its obligations under any Transaction pursuant to any of the Transaction Documents; or (C) that a material adverse change in the financial condition of Seller may occur due to the pendency of a material legal action against Seller; 37 (viii) an Act of Insolvency shall have occurred with respect to Seller; (ix) [Reserved] (x) any (A) representation or warranty made by Seller shall have been incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated; provided, however that Buyer's remedy for a breach of a representation and warranty with respect to any Purchased Loan shall be to mark such Purchased Loan to market; or (B) covenant made by Seller shall have been breached in a material respect; (xi) a final judgment by any competent court in the United States of America for the payment of money in an amount greater than $10,000,000 shall have been rendered against Seller, and remained undischarged or unpaid for a period ninety (90) days, during which period execution of such judgment is not effectively stayed; (xii) Seller or Buyer shall breach or fail to perform any of the terms, covenants, obligations or conditions of this Agreement, and such breach or failure to perform is not remedied within twenty (20) days, provided that any failure to comply with Section 11(j) must be cured within 5 days (unless otherwise specifically referred to in this definition of "Event of Default"); (xiii) Seller shall have defaulted, such default having not previously occurred, (beyond applicable notice and cure period) or failed to perform under any other 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 an obligation in excess of $5,000,000, or (B) permits the acceleration of the maturity of obligations in excess of $5,000,000 by any other party to or beneficiary of such note, indenture, loan agreement, guaranty, swap agreement or other contract agreement or transaction, or Seller shall breach any covenant or condition, shall fail to perform, admits its inability to perform or state its intention not to perform its obligations under any Transaction or in respect of any repurchase agreement, reverse repurchase agreement, securities contract or derivative transaction with any party; (xiv) [Reserved] (xv) Seller at any time fails to maintain a ratio of Seller's EBITDA to its interest expense coverage of more than 1.2x; (xvi) The Debt to Net Worth ratio of Seller at any time exceeds 30:1; or (xvii) The ratio of Modified Debt to Net Worth exceeds 5:1. All of the financial tests and covenants in this Agreement will be measured based on the consolidated position of Seller and its Subsidiaries. 38 14. REMEDIES 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 with respect to Seller), 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"). (ii) If Buyer exercises or is deemed to have exercised the option referred to in Section 14(i) of this Agreement: (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 (B) to the extent permitted by applicable law, the Pricing Rate with respect to each Transaction (determined as of the Accelerated Repurchase Date) shall be the Pricing Rate prior to the date of the Event of Default plus 200 basis points; and (C) the Custodian shall, upon the request of Buyer, deliver to Buyer all instruments, certificates and other documents then held by the Custodian relating to the Purchased Loans, (iii) Unless Seller has tendered the Repurchase Price, upon the occurrence and during the continuance of an Event of Default which has not previously occurred with respect to Seller (with respect to which Buyer has not agreed to forbearance or accepted a workout arrangement), Buyer may (A) immediately sell, at a public or private sale at such price or prices as Buyer may 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 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. Notwithstanding the definition of "Market Value" set forth in Section 1 herein, for purposes of this Section 14(iii), as to any Purchased Loan that has been delinquent for at least sixty (60) days, Buyer shall determine a market value for such Purchased Loan in good faith. The proceeds of any disposition of Purchased Loans effected pursuant to this Section 14(iii) shall be applied, (w) first, to the costs and expenses, including legal expenses, incurred by Buyer in connection with Seller's default; (x) second, to the Repurchase Price; 39 and (y) third, to any other outstanding obligation of Seller to Buyer or its Affiliates. (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 liquidation of a Transaction or the Purchased Loans does 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 or its Affiliates. (v) Seller shall be liable to Buyer for the amount of all 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, and any other actual out-of-pocket loss, damage, cost or expense directly arising or resulting from the occurrence of an Event of Default with respect to Seller. (vi) Buyer shall have, in addition to its rights and remedies under the Transaction Documents, all of the rights and remedies provided by applicable federal, state, foreign, and local laws (including, without limitation, if the Transactions are recharacterized as secured financings, the rights and remedies of a secured party under the UCC, to the extent that the UCC is applicable, and the right to offset any mutual debt and claim), in equity, and under any other agreement between Buyer and Seller. Without limiting the generality of the foregoing, Buyer shall be entitled to set off the proceeds of the liquidation of the Purchased Loans against all of Seller's obligations to Buyer, whether or not such obligations are then due, without prejudice to Buyer's right to recover any deficiency. (vii) Buyer may exercise any or all of the remedies available to Buyer immediately upon the occurrence of an Event of Default with respect to Seller (with respect to which Buyer has not agreed to forbearance or accepted a workout arrangement) 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. (viii) 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 40 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. (ix) To the extent that applicable law imposes duties on Buyer to exercise remedies in a commercially reasonable manner, Seller acknowledges and agrees that it is not commercially unreasonable for Buyer (i) to fail to incur expenses reasonably deemed significant by Buyer to prepare the Purchased Loans for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Purchased Loans to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of the Purchased Loans to be collected or disposed of, (iii) to fail to exercise collection remedies against Persons obligated on the Purchased Loans or to remove liens on or any adverse claims against the Purchased Loans, (iv) to exercise collection remedies against Persons obligated on the Purchased Loans directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of the Purchased Loans through publications or media of general circulation, whether or not the Purchased Loans are of a specialized nature, (vi) to contact other Persons, whether or not in the same business as Seller, for expressions of interest in acquiring all or any portion of such Purchased Loans, (vii) to hire one or more professional auctioneers to assist in the disposition of the Purchased Loans, whether or not the Purchased Loans are of a specialized nature, (viii) to dispose of the Purchased Loans by utilizing internet sites that provide for the auction of assets of the types included in the Purchased Loans or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase, at Buyer's expense, insurance or credit enhancements to insure Buyer against risks of loss, collection or disposition of the Purchased Loans or to provide to Buyer a guaranteed return from the collection or disposition of the Purchased Loans, or (xii) to the extent deemed appropriate by Buyer, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Buyer in the collection or disposition of any of the Purchased Loans. Seller acknowledges that the purpose of this Section 14(ix) is to provide non-exhaustive indications of what actions or omissions by Buyer would not be commercially unreasonable in Buyer's exercise of remedies against the Purchased Loans and that other actions or omissions by Buyer shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 14(ix). Without limitation upon the foregoing, nothing contained in this Section 14(ix) shall be construed to grant any rights to Seller or to impose any duties on Buyer that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section 14(ix). 41 (x) Buyer shall not be required to make any demand upon, or pursue or exhaust any of its rights or remedies against, Seller, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the obligations of Seller hereunder or to pursue or exhaust any of its rights or remedies with respect to any Purchased Loans therefor or any direct or indirect guarantee thereof. Buyer shall not be required to marshal the Purchased Loans or any guarantee of the obligations of Seller hereunder or to resort to the Purchased Loans or any such guarantee in any particular order, and all of its rights hereunder or under any other document or instrument executed in connection herewith shall be cumulative. To the extent it may lawfully do so, Seller absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against Buyer, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Purchased Loans made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Agreement, or otherwise. (xi) Seller hereby appoints Buyer as attorney-in-fact of Seller for the purpose, after the occurrence and during the continuance of an Event of Default, of carrying out the provisions of this Agreement and taking any action and executing or endorsing any instruments that Buyer may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. 15. NOTICES AND OTHER COMMUNICATIONS 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 address specified below 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: if to Buyer: Bear, Stearns Funding, Inc. 383 Madison Avenue New York, New York 10179 Attn: Eileen Albus Telephone: (212) 272-7502 Fax: (212) 272-2053 with a copy to: Sidley Austin Brown & Wood LLP 42 787 Seventh Avenue New York, New York 10019 Attn: Michael P. Peck Telephone: (212) 839-5576 Fax: (212) 839-5599 if to Seller: Capital Trust, Inc. 410 Park Avenue 14th Floor New York, New York 10022 Attn: Geoffrey Jervis Telephone: (212) 655-0247 Fax: (212) 655-0044 with a copy to: Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, New York 10022 Attn: Robert J. Grados, Esq. Telephone: (212) 318-6923 Fax: (212) 230-7830 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 of 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. 16. NON-ASSIGNABILITY (a) The rights and obligations of the parties under the Transaction Documents and under any Transaction shall not be assigned by either party without the prior written consent of the other party; provided, however, that Buyer may assign its rights and obligations under the Transaction Documents and/or under any Transaction to an Affiliate, without the prior written consent of Seller so long as that Affiliate has a Net Worth at least equal to that of Buyer as of the Purchase Date; and provided further, however, that upon the occurrence and during the continuation of an Event of Default, the non-defaulting party shall have an unfettered right to assign its rights and obligations without the consent of the defaulting party. (b) The transferring party pursuant to subsection (a) above shall be responsible for the payment of all fees and expenses relating to such transfer of its rights and obligations. (c) Buyer shall be entitled to issue one or more participation interests with respect to any or all of the Transactions. 43 (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 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. 17. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL (a) This Agreement shall be governed by the laws of the State of New York without giving effect to the conflict of laws principles thereof. (b) Each party irrevocably and unconditionally (i) 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 this Agreement or relating in any way to this Agreement or any Transaction under this Agreement and (ii) waives, to the fullest extent it may effectively do so, any 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. (c) Each party hereby irrevocably waives, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding and irrevocably consent to the service of any summons and complaint and any other process by the mailing via certified mail, return receipt requested 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 17 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 OF THE PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR THEREUNDER. 18. NO RELIANCE 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: (a) 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. 44 (b) 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. (c) 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; (d) 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; (e) 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. 19. INDEMNITY Seller hereby agrees to indemnify Buyer, Buyer's designee and each of its officers, directors, employees and agents ("Indemnified Parties") from and against any and all liabilities, obligations, actual, out-of-pocket losses, actual, out-of-pocket damages, actual, out-of-pocket 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 this Agreement and the documents delivered in connection herewith, other than income taxes, franchise taxes or other similar taxes of Buyer), actual, out-of-pocket fees, actual, out-of-pocket costs, actual, out-of-pocket expenses (including reasonable attorneys' fees and disbursements) or disbursements (all of the foregoing, collectively "Indemnified Amounts") which may at any time (including, without limitation, such time as this 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, this 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, the Truth in Lending Act and/or the Real Estate Settlement Procedures Act, 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, Seller will save, indemnify and hold Buyer harmless from and against all 45 expense (including, without limitation, reasonable attorneys' fees and expenses), 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 and the enforcement or the preservation of Buyer's rights under this Agreement or any Transaction contemplated hereby, including without limitation the reasonable fees and disbursements of its counsel. Seller hereby acknowledges that, the obligation of Seller hereunder is a recourse obligation of Seller. 20. DUE DILIGENCE Seller acknowledges that Buyer has the right, at its own cost and expense, to perform reasonable continuing due diligence reviews with respect to the Purchased Loans for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and Seller agrees that upon reasonable 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, Servicing Records and any and all documents, records, agreements, instruments or information relating to such Purchased Loans in the possession or under the control of Seller, any other servicer or subservicer and/or the Custodian. Seller also shall make available to Buyer a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Purchased Loan Files and the Purchased Loans. Without limiting the generality of the foregoing, Seller acknowledges that Buyer may enter into Transactions with Seller based solely upon the information provided by Seller to Buyer and the representations, warranties and covenants contained herein, and that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Purchased Loans. Buyer may underwrite such Purchased Loans itself or, at its own cost and expense, engage a third party underwriter to perform such underwriting. Seller agrees to reasonably cooperate with Buyer and any third party underwriter 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 Seller. 21. SERVICING (a) Notwithstanding the purchase and sale of the Purchased Loans hereby, Seller shall continue to cause the Purchased Loans to be serviced 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 7, Buyer's assigns. Seller shall service or cause the servicer to service the Purchased Loans in accordance with Accepted Servicing Practices approved by Buyer and maintained by other prudent mortgage lenders with respect to mortgage loans similar to the Purchased Loans. (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 46 other records relating to or evidencing the servicing of Purchased Loans (the "Servicing Records") so long as the Purchased Loans are subject to this Agreement. Seller grants Buyer a security interest in all servicing fees and rights of Seller relating to the Purchased Loans and all Servicing Records to secure the obligation of Seller or its designee to service in conformity with this Section and any other obligation of Seller to Buyer. 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) Seller shall provide to Buyer on a monthly basis, or more frequently at the request of Buyer, any and all information that is pertinent or related to the assessment and valuation of loans that are included in Purchased Loans, as or when received or available from Seller. Such information includes, but is not limited to, property operating statements, rent rolls, financial statements and other financial reports for each Purchased Loan, as well as any other information or events affecting the interests in or valuation of the Purchased Loans. (d) 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 Seller or any sub-servicer of the Purchased Loans with or without cause, in each case without payment of any termination fee. (e) Seller shall not employ sub-servicers to service the Purchased Loans without the prior written approval of Buyer which approval 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 in the Purchased Loans to Buyer. (f) Seller shall cause any sub-servicers engaged by Seller to execute a letter agreement with Buyer acknowledging Buyer's security interest and agreeing that it shall deposit all Income with respect to the Purchased Loans in the Collection Account. (g) To the extent permitted under the servicing agreement the payment of servicing fees shall be subordinate to payment of amounts outstanding under any Transaction and this Agreement. (h) The servicer and Seller may not enter into any modification or extension agreement without the written consent or approval of Buyer. 22. WIRE INSTRUCTIONS (a) Any amounts to be transferred by Buyer to Seller hereunder shall be sent by wire transfer in immediately available funds to (i) the account of Seller at: Bank: JPMorgan Chase Bank Acct. No.: 230254632 ABA #: 021-000021 Acct. Name: Capital Trust, Inc. Corporate Account Attn: Geoffrey G. Jervis (212) 655-0247; 47 or (ii) to an account designated by Seller in writing, provided that such designation is made by at least two (2) Authorized Representatives of Seller. (b) Any amounts to be transferred by Seller to Buyer hereunder shall be sent by wire transfer in immediately available funds to the account of Buyer at: Acct.: For the A/C of Bear Stearns MBS, FNB Chicago Acct. No.: 5801230 ABA No.: 071000013 Attn: Eileen Albus (c) Amounts other than the Purchase Price for a Purchased Loan received after 3:00 p.m., New York City time, on any Business Day shall be deemed to have been paid and received on the next succeeding Business Day. 23. CONFIDENTIALITY Each of the parties acknowledges that this Agreement, the Custodial Agreement and the terms of each Transaction (including information disclosed in due diligence) are confidential in nature and each such party agrees that, unless an Event of Default shall occur and be continuing, or as otherwise directed by a court or regulatory entity of competent jurisdiction or as may be required by federal or state law (which determination as to federal or state law shall be based upon written advice of counsel), it shall limit the distribution of such documents and the disclosure of such information to its officers, employees, attorneys, accountants, investors and agents as required in order to conduct its business with the other parties hereto. Notwithstanding the foregoing, Buyer shall be permitted to provide a copy of this Agreement and the Custodial Agreement, and shall be permitted to describe the terms of each Transaction, in connection with the re-hypothecation of the Eligible Loans subject to the terms of this Agreement. This Section shall not apply to information which has entered the public domain through means other than a breach of the foregoing covenant by the party seeking to distribute such documents or which the other party has given written permission to disclose. Seller hereby acknowledges and agrees that any and all information concerning Seller (the "Information") that is furnished by Seller to Buyer and any of its Affiliates may be used and relied upon by any other of Buyer's Affiliates without any liability to Seller to the extent such information is obtained by Buyer or an Affiliate from another of its Affiliates without any liability to Seller, provided, however, that no Information will be used by a Buyer or an Affiliate in violation of federal or state securities laws. Seller further acknowledges and agrees that any confidentiality agreement that may now or hereafter exist between Seller and Buyer or an Affiliate shall not preclude the disclosure of any Information between or among Buyer and any of its Affiliates. 24. SINGLE TRANSACTION Buyer and Seller acknowledge that, and have entered hereunto 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 48 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 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. 25. 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 any of the foregoing, the failure to give a notice pursuant to Section 3(a) hereof will not constitute a waiver of any right to do so at a later date. 26. 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 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 subsection (a) of this Section, 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 Section, Seller shall be deemed 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 which would affect, in any material respect, Seller's ability to perform its obligations hereunder. 27. NO PERSONAL LIABILITY; FURTHER ASSURANCES; MISCELLANEOUS (a) None of the officers, members, shareholders or directors of Seller shall be liable for the payment or performance of the Seller hereunder. (b) Seller agrees that, from time to time upon the prior written request of Buyer, it shall (i) execute and deliver such further documents, provide such additional information and 49 reports and perform such other acts as Buyer may reasonably request in order to insure compliance with the provisions hereof (including, without limitation, compliance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act) Act of 2001) and to fully effectuate the purposes of this Agreement and (ii) provide such opinions of counsel concerning matters relating to this Agreement as Buyer may reasonably request; provided, however, that nothing in this Section 27(b) shall be construed as requiring Buyer to conduct any inquiry or decreasing Seller's responsibility for its statements, representations, warranties or covenants hereunder. (c) 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. (d) 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 this Agreement, Buyer shall have all rights and remedies of a secured party under the Uniform Commercial Code. (e) 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 (f) The headings in the Transaction Documents are for convenience of reference only and shall not affect the interpretation or construction of the Transaction Documents. (g) Without limiting the rights and remedies of Buyer under the Transaction Documents, Seller shall pay Buyer's reasonable out-of-pocket costs and expenses, including reasonable fees and expenses of accountants, attorneys and advisors, incurred in connection with the preparation, negotiation, execution and consummation of, and any amendment, supplement or modification to, the Transaction Documents and the Transactions thereunder up to $75,000. Seller agrees to pay Buyer on demand all costs and expenses (including reasonable expenses for legal services of every kind) of any subsequent enforcement of any of the provisions hereof, or of the performance by Buyer of any obligations of Seller in respect of the Purchased Loans, or any actual or attempted sale, or any exchange, enforcement, collection; compromise or settlement in respect of any of the Purchased Loans and for the custody, care or preservation of the Purchased Loans (including insurance costs) and defending or asserting rights and claims of Buyer in respect thereof, by litigation or otherwise. In addition, Seller agrees to pay Buyer on demand all reasonable costs and expenses (including reasonable expenses for legal services) incurred in connection with the maintenance of the Collection Account and registering the Purchased Loans in the name of Buyer or its nominee. All such expenses shall be recourse obligations of Seller to Buyer under this Agreement. (h) Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or be invalid under such law, such provision shall be ineffective to the extent of 50 such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (i) The parties acknowledge and agree that although they intend to treat each Transaction as a sale of the Purchased Loans, in the event that such sale shall be recharacterized as a secured financing, this Agreement shall also serve as a security agreement with respect to Buyer's rights in the Collateral. In order to secure and to provide for the prompt and unconditional repayment of the Repurchase Price and the performance of its obligations under this Agreement, Seller hereby pledges to Buyer and hereby grants to Buyer a first priority security interest in all of its rights in the Collateral referred to in Section 5 hereof. Buyer may without Seller's execution, consent or approval, and Seller hereby covenants that it shall at Buyer's request duly execute any Form UCC financing statements as may be required by Buyer in order to perfect its security interest created hereby in such rights and obligations granted above, it being agreed that Seller shall pay any and all fees required to file such financing statements. (j) This Agreement contains 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. (k) The parties understand that this 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 this Agreement and that it is satisfied with its legal counsel and the advice received from it. (l) Should any provision of this 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 this Agreement. (m) 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. (n) Any notice, acknowledgment, statement or certificate (including, without limitation, any Confirmation) given by Buyer to any Seller shall be effective as, and shall be deemed to be, a notice, acknowledgment, statement or certificate given to each and every Seller. Buyer may, without necessity of any inquiry, rely solely upon any notice, acknowledgment, statement or certificate of any of (1) any Seller or (2) any authorized representative of Seller set forth on Exhibit II or otherwise designated by any Seller from time to time, as constituting the joint and several statement and certificate of Seller fully authorized by Seller. Any disbursements of funds to Seller provided for in Section 4 of this Agreement or otherwise in this Agreement or the Transaction Documents shall be deemed properly made to Seller if disbursed to any Seller or its designee. 51 28. 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; (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. 52 IN WITNESS WHEREOF, the parties have executed this Agreement as of the 16th day of August, 2005. BUYER: ------ BEAR, STEARNS FUNDING, INC. By: /s/ Michael Forastiere ------------------------ Name: Michael Forastiere Title: Vice President SELLER: ------- CAPITAL TRUST, INC. By: /s/ Geoffrey G. Jervis ------------------------------------ Name: Geoffrey G. Jervis Title: Chief Financial Officer EXHIBITS -------- EXHIBIT I Form of Confirmation EXHIBIT II Authorized Representatives of Seller EXHIBIT III Monthly Reporting Package EXHIBIT IV Form of Custodial Delivery EXHIBIT V Form of Power of Attorney EXHIBIT VI Representations and Warranties Regarding Individual Purchased Loans EXHIBIT VII Representations and Warranties Regarding Individual Mezzanine Loan EXHIBIT VIII Loan Information EXHIBIT IX Transaction Procedure EXHIBIT X [RESERVED] EXHIBIT XI [RESERVED] EXHIBIT XII Form of Opinion of Counsel to Seller EXHIBIT XIII Form of Bailee Agreement SCHEDULE 1-A Form of UCC Financing Statement SCHEDULE 1-B Form of UCC Financing Statement Amendment EXHIBIT I CONFIRMATION STATEMENT BEAR, STEARNS FUNDING, INC. Ladies and Gentlemen: Bear, Stearns Funding, Inc., is pleased to deliver our written Confirmation of our agreement to enter into the Transaction pursuant to which Bear, Stearns Funding, Inc., shall purchase from you the Purchased Loans identified in the Master Repurchase Agreement between Bear, Stearns Funding, Inc. (the "Buyer") and Capital Trust, Inc., a Maryland corporation ("Seller"), dated as of August 16, 2005 (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: Purchased Loans: As identified on attached Schedule 1 Aggregate Principal Amount of Purchased Loans As identified on attached Schedule 1 Repurchase Date: Purchase Price: $ Pricing Rate: one month LIBOR plus ____% [ ] Buyer's Margin Ratio: Original Principal Amount: Current Principal Amount: Original Market Value: Due Date: Governing Agreements: [ ] Name and address for communications: Buyer: ----- Attention: Telephone: Telecopy:
I-1 Seller: ------ Capital Trust, Inc. Attention: Telephone: Telecopy: BEAR, STEARNS FUNDING, INC. By: ------------------------------------------------ Name: Title: AGREED AND ACKNOWLEDGED: ________________, a ___________ By: __________________________ Its: _________________________
I-2 Schedule 1 to Confirmation Statement Purchased Loans: Aggregate Principal Amount: I-3 EXHIBIT II AUTHORIZED REPRESENTATIVES OF SELLER Name Specimen Signature - ---- ------------------ John R. Klopp - --------------------------------------- ---------------------------------------- Stephen D. Plavin - --------------------------------------- ---------------------------------------- Geoffrey G. Jervis - --------------------------------------- ---------------------------------------- II-1 EXHIBIT III MONTHLY REPORTING PACKAGE ------------------------- Name: Loan Number: Borrower Name: Property Address: Property City: Property State: Property County: Property Zip: Lien Position: Adjustment Type: Property Type: Occupancy: Loan Purpose: Original Coupon: Current Coupon: Original Balance: Current Balance: Outstanding Senior Debt**: Original Accrued P&I: Current Accrued Interest 3/31/04: Origination Date: First Payment Date: Maturity Date: Date Next Due: Original Term: Original Amortization Term: Product Type: Balloon Flag: Original LTV: Combined Current LTV**: III-1 Original Appraisal: Original Spread: Payment Frequency: Servicing Fee: Prepayment Penalty Period: Prepayment Penalty Description: Index Type: Rounding Factor: Convertible: New Amortization Flag: Negative Amortization Cap: Periodic Payment Cap: Margin: Maximum Life Rate: Minimum Life Rate: Initial Periodic Rate Cap: Subsequent Periodic Rate Cap: First Rate Adjustment Date: First Payment Adjustment Date: Next Rate Adjustment Date: Next Payment Adjustment Date: Rate Adjustment Period: Payment Adjustment Period: III-2 EXHIBIT IV FORM OF CUSTODIAL DELIVERY -------------------------- On this ____ of _____, 200_, Capital Trust, Inc., a Maryland corporation ("Seller"), as Seller under that certain Master Repurchase Agreement, dated as of August 16, 2005 (the "Repurchase Agreement") between Seller and Bear, Stearns Funding, Inc. ("Buyer"), does hereby deliver to Deutsche Bank Trust Company Americas, as custodian ("Custodian"), as custodian under that certain Custodial Agreement, dated as of August 16, 2005, between Buyer and Custodian, the Purchased Loan Files with respect to the Purchased Loans to be purchased by Buyer pursuant to the Repurchase Agreement, which Purchased Loans are listed on the Purchased Loan Schedule attached hereto and which Purchased Loans shall be subject to the terms of the Custodial Agreement on the date hereof. With respect to the Purchased Loan Files delivered hereby, for the purposes of issuing the Trust Receipt, the Custodian shall review the Purchased Loan Files to ascertain delivery of the documents listed in Section 3 to the Custodial Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Custodial Agreement. IN WITNESS WHEREOF, Seller has caused its name to be signed hereto by its officer thereunto duly authorized as of the day and year first above written. __________________, a ______________ By:__________________________ Its: IV-1 EXHIBIT V FORM OF POWER OF ATTORNEY ------------------------- "Know All Men by These Presents, that Capital Trust, Inc., a Maryland corporation ("Seller"), does hereby appoint Bear, Stearns Funding, Inc. ("Buyer"), 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 August 16, 2005 (the "Master Repurchase Agreement"), between Seller and Buyer 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 and the Servicing Records to the extent that Seller is permitted by law to act through an agent. TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OR 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. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Master Repurchase Agreement. IN WITNESS WHEREOF Seller has caused this Power of Attorney to be executed and Seller's seal to be affixed this 17th day of August, 2005. __________________, a ______________ By:______________________ Its: V-1 EXHIBIT VI REPRESENTATIONS AND WARRANTIES REGARDING EACH INDIVIDUAL PURCHASED LOAN WHICH IS A WHOLE LOAN OR B NOTE ---------------------------------------- 1. Purchased Loan Schedule and Loan Information. The information set forth in the Purchased Loan Schedule and the Loan Information is complete, true and correct in all material respects. 2. Whole Loan; Ownership of Purchased Loans. Each Purchased Loan is a whole loan and not a participation interest in a whole loan. Immediately prior to the transfer to Buyer of the Purchased Loans, Seller had good and marketable title to, and was the sole owner of, each Purchased Loan. Seller has full right, power and authority to transfer and assign each of 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 Loans free and clear of any and all pledges, liens, charges, security interests, participation interests and/or other encumbrances. The sale of the Purchased Loans to Buyer or its designee does not require Seller to obtain any governmental or regulatory approval or consent that has not been obtained. 3. Payment Record. No scheduled payment of principal and interest under any Purchased Loan was 30 days or more past due as of the Purchase Date without giving effect to any applicable grace period, and no Purchased Loan was 30 days or more delinquent in the twelve-month period immediately preceding the Purchase Date. 4. Lien; Valid Assignment. The Mortgage related to and delivered in connection with each Purchased Loan constitutes a valid and, subject to the exceptions set forth in paragraph 13 below, enforceable first priority lien upon the related Property, prior to all other liens and encumbrances and there are no liens or encumbrances pari passu with the lien of the Mortgage, except for (a) the lien for current real estate taxes and assessments not yet due and payable, (b) covenants, conditions and restrictions, rights of way, easements and other matters that are of public record and/or are referred to in the related lender's title insurance policy, (c) exceptions and exclusions specifically referred to in such lender's title insurance policy, and (d) other matters to which like properties are commonly subject, none of which matters referred to in clause (b), (c) or (d) individually or in the aggregate materially interferes with the security intended to be provided by such Mortgage or the marketability or current use of the Property or the current ability of the Property to generate operating income sufficient to service the Purchased Loan debt (the foregoing items (a) through (d) being herein referred to as the "Permitted Encumbrances"). The related assignment of such Mortgage executed and delivered in favor of Buyer is in recordable form and constitutes a legal, valid and binding assignment, sufficient to convey to the assignee named therein all of the assignor's right, title and interest in, to and under such Mortgage. Such Mortgage, together with any separate security agreements, chattel mortgages or equivalent instruments, establishes and creates a valid and, subject to the exceptions set forth in paragraph 13 below, enforceable security interest in favor of the holder thereof in all of the related Mortgagor's personal property used in, and reasonably necessary to operate the related Property. A Uniform Commercial Code financing statement has been filed VI-1 and/or recorded in all places necessary to perfect a valid security interest in such personal property, and such security interest is a first 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. Notwithstanding the foregoing, no representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of Uniform Commercial Code financing statements are required in order to effect such perfection. 5. Assignment of Leases and Rents. The assignment of leases and rents ("Assignment of Leases") set forth in the Mortgage (or in a separate instrument) and related to and delivered in connection with each Purchased Loan establishes and creates a valid, subsisting and, subject to the exceptions set forth in paragraph 13 below, enforceable first priority perfected lien and together with the Mortgage, first priority perfected security interest in the related Mortgagor's interest in all leases, subleases, licenses or other agreements pursuant to which any person is entitled to occupy, use or possess all or any portion of the real property subject to the related Mortgage, and each assignor thereunder has the full right to assign the same. The related assignment of any Assignment of Leases, not included in a Mortgage, executed and delivered in favor of Buyer is in recordable form and constitutes a legal, valid and binding assignment, sufficient to convey to the assignee named therein all of the assignor's right, title and interest in, to and under such Assignment of Leases. If an Assignment of Leases exists with respect to any Mortgage Loan (whether as part of the related Mortgage or separately), then the related Mortgage or related Assignment of Leases, subject to applicable law, provides for, upon an event of default under the Mortgage Loan, the appointment of a receiver for the collection of rents or for the related mortgagee to enter into possession to collect the rents or for rents to be paid directly to the mortgagee. 6. Mortgage Status; Waivers and Modifications. In the case of each Mortgage Loan, (a) no Mortgage has been satisfied, canceled, rescinded or subordinated in whole or in material part, (b) the related Property has not been released from the lien of such Mortgage, in whole or in material part, (c) no instrument has been executed that would effect any such satisfaction, cancellation, subordination, rescission or release except for any partial reconveyances of portions of the real property that do not materially adversely affect the value of the property, and (d) no Mortgagor has been released from its obligations under the related Mortgage in whole or in material part. None of the terms of any Mortgage Note, Mortgage or Assignment of Leases have been impaired, waived, altered or modified in any respect, except by written instruments, all of which are included in the related Mortgage File. 7. Condition of Property; Condemnation. Except as set forth in an engineering report prepared in connection with the origination of the related Purchased Loan and dated not more than 12 months prior to the Purchase Date, each Property is, to Seller's knowledge, free and clear of any damage that would materially and adversely affect its value as security for the related Purchased Loan (normal wear and tear excepted). Seller has received no notice, and has no knowledge, of any pending or threatened proceeding for the condemnation of all or any material portion of any Property. To Seller's knowledge, as of the date of the origination of each Purchased Loan (based on surveys and/or title insurance obtained in connection with the origination of the Purchased Loans) (a) all of the improvements on the related Property which were considered material in determining the appraised value of the VI-2 Property lay wholly within the boundaries and building restriction lines of such property, except for encroachments that are insured against by the Title Policy referred to in paragraph 8 herein or that do not materially and adversely affect the value, principal use, or marketability of such Property, and (b) no improvements on adjoining properties encroached upon such Property so as to materially and adversely affect the value, principal use, or marketability of such Property, except those encroachments that are insured against by the Title Policy referred to in paragraph 8 herein. 8. Title Insurance. Each Property is covered by an American Land Title Association (or an equivalent form thereof approved for use in the applicable jurisdiction) lender's title insurance policy (the "Title Policy") in the original principal amount of the related Purchased Loan after all advances of principal. Each Title Policy insures that the related Mortgage is a valid first priority lien on such Property, subject only to the exceptions stated therein (or a preliminary title policy with escrow instructions or a marked up title insurance commitment on which the required premium has been paid exists which is binding on the title insurer and 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, insures the originator of the Mortgage Loan, its successors and assigns and, to Seller's knowledge, (i) no material claims have been made thereunder and no claims have been paid thereunder and (ii) was issued by a title insurance company qualified at origination to do business in the jurisdiction in which the Property is located to the extent such qualification was required in order for the Title Policy to be enforceable. 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 without the consent of or notice to the insurer. Such Title Policy contains no exclusion for, or it affirmatively insures (unless the related Property is located in a jurisdiction where such affirmative insurance is not available), the following: (a) access to a public road; and (b) that if a survey was reviewed or prepared in connection with the origination of the related Mortgage Loan, the area shown on such survey is the same as the property legally described in the related Mortgage. 9. No Holdbacks. The proceeds of each 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. 10. Mortgage Provisions. The Mortgage Note or Mortgage for each Purchased Loan, together with applicable state law, contains customary and enforceable provisions for comparable mortgaged properties similarly situated (subject to the exceptions set forth in paragraph 13) such as to render the rights and remedies of the holder thereof adequate for the practical realization against the related Property of the principal benefits of the security intended to be provided thereby, including, without limitation, foreclosure or similar proceedings as applicable for the jurisdiction in which the related Property is located. VI-3 11. Buyer under Deed of Trust. If any Mortgage is a deed of trust, (a) a trustee, duly qualified under applicable law to serve as such, is properly designated and serving under such Mortgage, and (b) no fees or expenses are payable to such trustee by Seller, Buyer or any transferee thereof except in connection with a trustee's sale after default by the related Mortgagor or in connection with any full or partial release of the related Property or related security for the related Purchased Loan. 12. Environmental Conditions. With respect to each Property (a) an environmental site assessment (or an update of a previous assessment) was performed by an independent third party environmental consultant with respect to each Property in connection with the origination of the related Purchased Loan, (b) a report of each such assessment (an "Environmental Report") is dated no earlier than 12 months prior to the Purchase Date and has been delivered to Buyer, and (c) to Seller's knowledge there is no violation of applicable environmental laws and regulations with respect to, or any material and adverse environmental condition or circumstance affecting any Property that was not disclosed in such report. Each Mortgage requires the related Mortgagor to comply with all applicable federal, state and local environmental laws and regulations. Where such Environmental Report disclosed a violation of applicable environmental laws and regulations or the existence of a material and adverse environmental condition or circumstance affecting any Property, (i) a party not related to the Mortgagor was identified as the responsible party for such condition or circumstance, (ii) the related Mortgagor was required either to provide additional security and/or to obtain an operations and maintenance plan or (iii) the related Mortgagor provided evidence satisfactory to the originator of such Mortgage Loan that applicable federal, state or local governmental authorities would not take any action, or require the taking of any action, in respect of such violation, condition or circumstance. The related Purchased Loan Documents contain provisions pursuant to which the related Mortgagor or a principal of such Mortgagor has agreed to indemnify the mortgagee for damages resulting from violations of any applicable Environmental Laws. 13. Loan Document Status. Each Mortgage Note, Mortgage and other agreement that evidences or secures a Purchased Loan and that was executed by or on behalf of the related Mortgagor is the legal, valid and binding obligation of the maker thereof (subject to any non-recourse provisions contained in any of the foregoing agreements and any applicable state anti-deficiency or market value limit deficiency legislation), enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally, and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and there is no valid defense, counterclaim or right of offset or rescission available to the related Mortgagor with respect to such Mortgage Note, Mortgage or other agreements. 14. Insurance. Each Property is, and is required pursuant to the related Mortgage to be, insured by (a) an all risk 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, 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 VI-4 practices, against other risks insured against by persons operating like properties in the locality of the Property in an amount not less than the lesser of the principal balance of the related Purchased Loan and 100% of the replacement cost (not allowing reduction in insurance proceeds for depreciation) of the Property, and not less than the amount necessary to avoid the operation of any co-insurance provisions with respect to the Property; (b) a business interruption or rental loss insurance policy; providing coverage for at least twelve months (other than for manufactured housing communities) and for eighteen months of coverage if the Property is a special purpose property or if the Mortgage Loan is in excess of $25 million; (c) a flood insurance policy (if any portion of the 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, and in any event not less than $1 million per occurrence. Such insurance policy contains a standard mortgagee clause that names the holder of the Mortgage, its successors and assigns as mortgagee as an additional insured in the case of liability insurance policies or as a loss payee in the case of property insurance policies. Such insurance policy is not terminable (nor may the amount of coverage provided thereunder be reduced) without prior written notice to the holder of the Mortgage, and no such notice has been received, including any notice of nonpayment of premiums, that has not been cured. Each Mortgage obligates the related Mortgagor to maintain all such insurance and, upon such Mortgagor's failure to do so, authorizes the holder of the Mortgage to purchase and maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from such Mortgagor. Other than as set forth in paragraph 17(h) hereof, each Mortgage provides that casualty insurance proceeds will be applied either to the restoration or repair of the related Property or to the reduction or defeasance of the principal amount of the Purchased Loan. 15. Taxes and Assessments. There are no delinquent or unpaid taxes or assessments (including assessments payable in future installments), or other outstanding charges affecting any Property which are or may become a lien of priority equal to or higher than the lien of the related Mortgage. For purposes of this representation and warranty, real property taxes and assessments shall not be considered unpaid until the date on which interest and/or penalties would be first payable thereon. 16. Mortgagor Bankruptcy. No Mortgagor, non-recourse carve-out guarantor or tenant physically occupying 25% or more (by square feet) of the net rentable area of a Property is a debtor in any state or federal bankruptcy or insolvency proceeding. 17. Leasehold Estate. Each Property consists of the related Mortgagor's fee simple estate in real estate or, if the related Purchased Loan is secured in whole or in part by the interest of a Mortgagor as a lessee under a ground lease of a Property (a "Ground Lease"), by the related Mortgagor's interest in the Ground Lease but not by the related fee interest in such Property (the "Fee Interest"). With respect to any Purchased Loan secured by a Ground Lease but not by the related Fee Interest: a. Such Ground Lease or a memorandum thereof has been duly recorded; such Ground Lease (or the related estoppel letter or lender protection agreement between Seller and related lessor) permits the current use of the Property and permits the interest of the lessee thereunder to VI-5 be encumbered by the related Mortgage and does not restrict the use of the related Property by such lessee, its successors or assigns in a manner that would adversely effect the security provided by the related Mortgage by limiting in any way its current use; and there has been no material change in the terms of such Ground Lease since the origination of the related Purchased Loan, with the exception of material changes reflected in written instruments that are a part of the related Mortgage File; b. The lessee's interest in such Ground Lease is not subject to any liens or encumbrances superior to, or of equal priority with, the related Mortgage, other than the related Fee Interest and Permitted Encumbrances; c. The Mortgagor's interest in such Ground Lease is assignable to Buyer and is further assignable by Buyer, its successors and assigns upon notice to, but without the consent of, the lessor thereunder (or, if such consent is required, it has been obtained prior to the Purchase Date) and, in the event that it is so assigned, is further assignable by Buyer and its successors and assigns upon notice to, but without the need to obtain the consent of, such lessor. If required by the Ground Lease, the lessor has received notice of the lien of the related Mortgage in accordance with the provisions of the Ground Lease; d. In connection with the origination of such Mortgage Loan, the related ground lessor provided an estoppel to the originator confirming that the related Mortgagor was not then in default under such Ground Lease. The Ground Lease provides that no material amendment to the Ground Lease is effective against the mortgagee under such Mortgage Loan unless the mortgagee has consented thereto. Such Ground Lease is in full force and effect, and Seller and any servicer acting on Seller's behalf have received no notice that an event of default has occurred thereunder or that the Ground lease has terminated, and, to Seller's knowledge, there exists no condition that, but for the passage of time or the giving of notice, or both, would result in an event of default under the terms of such Ground Lease; e. Such Ground Lease, or an estoppel letter or other agreement, (A) requires the lessor under such Ground Lease to give notice of any default by the lessee to the mortgagee, provided that the mortgagee has provided the lessor with notice of its lien in accordance with the provisions of such Ground Lease to the extent such Ground Lease requires such notice, further (B) provides that no notice of termination given under such Ground Lease (including rejection of such Ground Lease in a bankruptcy proceeding) is effective against the holder of the Mortgage unless a copy of such notice has been delivered to such holder and the lessor has offered to enter into a new lease with such holder on terms that do not materially vary from the economic terms of the Ground Lease; VI-6 f. A mortgagee is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of the lessee under such Ground Lease by foreclosure or otherwise if possession is necessary to effect a cure) to cure any default under such Ground Lease, which is curable after the receipt of notice of any such default, before the lessor thereunder may terminate such Ground Lease; g. Such Ground Lease has an original term (including any extension options set forth therein which, under all circumstances, may be exercised, and will be enforceable, by the mortgagee if it takes possession of such leasehold interest) which extends not less than twenty years beyond the stated maturity date of the related Purchased Loan and ten years beyond the amortization period for the related Purchased Loan; h. Under the terms of such Ground Lease and the related Mortgage, taken together, any related insurance proceeds or condemnation award other than in respect of a total loss will be applied either to the repair or restoration of all or part of the related Property, with the mortgagee or a trustee appointed by it having the right to hold and disburse such proceeds as the repair or restoration progresses (except in such cases where a provision entitling another party to hold and disburse such proceeds would not be viewed as commercially unreasonable by a prudent commercial mortgage lender for conduit programs), or to the payment or defeasance of the outstanding principal balance of the Purchased Loan together with any accrued interest thereon; i. Such Ground Lease does not impose any restrictions on subletting which would be viewed as commercially unreasonable by prudent commercial mortgage lenders in the lending area where the Property is located and such Ground Lease contains a covenant that the ground lessor is not permitted, in the absence of an uncured default, to disturb the possession, interest or quiet enjoyment of the lessee thereunder for any reason or in any manner which would materially adversely affect the security provided by the related Mortgage; and j. Such Ground Lease provides, or the lessor has otherwise agreed, that such Ground Lease may not be amended or modified or any such amendment or modification will not be effective against the mortgagee without the prior written consent of the mortgagee under such Purchased Loan any such action without such consent is not binding on such mortgagee, its successors and assigns, provided such mortgagee has provided the ground lessor with notice of its lien in accordance with the terms of the Ground Lease. 18. Escrow Deposits. All escrow deposits and payments (including capital improvements, environmental remediation reserves and other reserve deposits, if any) relating to each Purchased Loan that are, as of the Purchase Date, required to be deposited or paid to the VI-7 lender under the terms of the related Mortgage Loan documents have been so deposited or paid and, to the extent of any remaining balances of such escrow deposits, are in the possession or under the control of Seller or its agents (which shall include the applicable servicer of the Mortgage Loan). Any and all material requirements under each Mortgage Loan as to completion of any material improvements and as to disbursement of any funds escrowed for such purpose, which requirements were to have been complied with on or before the Purchase Date, have been complied with in all material respects or, if and to the extent not so complied with, the escrowed funds (or an allocable portion thereof) have not been released except in accordance with the terms of the related loan documents. 19. LTV Ratio. The gross proceeds of each Purchased Loan to the related Mortgagor at origination did not exceed the non-contingent principal amount of the Purchased Loan and either: (a) such Purchased Loan is secured by an interest in real property having a fair market value (i) at the date the Purchased Loan was originated at least equal to 80 percent of the original principal balance of the Purchased Loan or (ii) at the Purchase Date at least equal to 80 percent of the principal balance of the Purchased Loan on such date; provided that for purposes hereof, the fair market value of the real property interest must first be reduced by (x) the amount of any lien on the real property interest that is senior to the Purchased Loan and (y) a proportionate amount of any lien that is in parity with the Purchased Loan (unless such other lien secures a Purchased Loan that is cross-collateralized with such Purchased Loan, in which event the computation described in clauses (a)(i) and (a)(ii) of this paragraph 19 shall be made on a pro rata basis in accordance with the fair market values of the Properties securing such cross-collateralized Purchased Loans; or (b) substantially all the proceeds of such Purchased Loan were used to acquire, refinance, improve or protect the real property which served as the only security for such Purchased Loan (other than a recourse feature or other third party credit enhancement within the meaning of Treasury Regulations Section 1.860G-2(a)(l)(ii)). 20. Qualified Mortgage; Purchased Loan Modifications. Each Mortgage Loan is a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Code and Treasury regulation section 1.860G-2(a) (but without regard to the rule in Treasury regulation section 1.860G-2(f)(2)). Any Purchased Loan that was "significantly modified" prior to the Purchase Date so as to result in a taxable exchange under Section 1001 of the Code either (a) was modified as a result of the default or reasonably foreseeable default of such Purchased Loan or (b) satisfies the provisions of either clause (a)(i) of paragraph 19 (substituting the date of the last such modification for the date the Purchased Loan was originated) or clause (a)(ii) of paragraph 19, including the proviso thereto. 21. Advancement of Funds by Seller. No holder of a Purchased Loan has advanced funds or induced, solicited or knowingly received any advance of funds from a party other than the owner of the related Property, directly or indirectly, for the payment of any amount required by such Purchased Loan. 22. No Mechanics' Liens. As of the date of the Mortgage, and to the actual knowledge of Seller as of the Purchase Date, each Property is free and clear of any and all mechanics' and materialmen's liens that are prior or equal to the lien of the related Mortgage, and no rights are outstanding that under law could give rise to any such lien that would be prior VI-8 or equal to the lien of the related Mortgage except, in each case, for liens insured against by the Title Policy referred to herein or otherwise bonded. 23. Compliance with Usury Laws. Each Purchased Loan complied with, or is exempt from, all applicable usury laws in effect at its date of origination. 24. Cross-collateralization; Cross-default. No Purchased Loan is cross-collateralized or cross-defaulted with any loan other than one or more other Purchased Loans. 25. Releases of Property. Except as described in the next sentence, no Mortgage Note or Mortgage requires the mortgagee to release all or any material portion of the related Property from the lien of the related Mortgage except upon payment in full or defeasance of all amounts due under the related Purchased Loan. The Mortgages relating to those Purchased Loans identified on the Purchased Loan Schedule require the mortgagee to grant releases of portions of the related Properties upon (a) the satisfaction of certain legal and underwriting requirements and (b) except where the portion of the Property permitted to be released was not considered by, Seller to be material in the underwriting of the Purchased Loan, either (1) the payment of a release price set forth therein and prepayment consideration in connection therewith or (2) the partial defeasance of such Purchased Loan. No Purchased Loan permits the release or substitution of collateral if such release or substitution (a) would create a "significant modification" of such Purchased Loan within the meaning of Treas. Reg. Section 1.1001 3 or (b) would cause such Purchased Loan not to be a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Code (without regard to clauses (A)(i) or (A)(ii) thereof). 26. No Equity Participation or Contingent Interest. No Purchased Loan contains any equity participation by the lender or provides for negative amortization or for any contingent or additional interest in the form of participation in the cash flow of the related Property, or is convertible by its terms into an equity ownership interest in the related Property or the related Mortgagor, except that, in the case of an ARD Loan, such Mortgage Loan provides that, during the period commencing on or about the related anticipated repayment date and continuing until such Mortgage Loan is paid in full, (a) additional interest shall accrue and may be compounded monthly and (b) a portion of the cash flow generated by such Property will be applied each month to pay down the principal balance thereof in addition to the principal portion of the related monthly payment. 27. No Material Default. There exists no monetary default and to Seller's knowledge, there exists no material non-monetary default, breach, violation or event of acceleration (and no event which, with the passage of time or the giving of notice, or both, would constitute any of the foregoing) under the documents evidencing or securing the Purchased Loan, in any such case to the extent the same materially and adversely affects the value of the Purchased Loan and the related Property; provided, however, that this representation and warranty does not address or otherwise cover any default, breach, violation or event of acceleration that specifically pertains to any matter otherwise covered by any other representation and warranty made by Seller in any of paragraphs 3, 7, 12, 14, 15 and 17. Neither the Mortgage Loan Seller nor any servicer acting on its behalf has issued any notice of default, VI-9 breach or violation related to the Mortgage Loan, accelerated the Mortgage Loan or commenced judicial or non-judicial foreclosure proceedings with respect to the Mortgage Loan. 28. Inspections. Seller (or if Seller is not the originator, the originator of the Purchased Loan) has inspected or caused to be inspected each Property in connection with, and during the 12 month period prior to, the origination of the related Purchased Loan. 29. Local Law Compliance. Based on due diligence considered reasonable by prudent commercial mortgage lenders in the lending area where each Property is located, to Seller's knowledge the improvements located on or forming part of each Property complies in all material respects with applicable zoning laws and ordinances, or constitutes a legal non-conforming use or structure or, if any such improvement does not so comply and does not constitute a legal non-conforming use or structure, such non-compliance and failure does not materially and adversely affect (i) the value of the related Property as determined by the appraisal performed at origination or (ii) the principal use of the Property as of the date of the origination of such Mortgage Loan. As of the date of origination, with respect to each legal non-conforming use or structure, the originator determined based on due diligence considered reasonable by prudent commercial mortgage lenders in the lending area where the subject Property is located that if a casualty occurred at that time, the Property could have been restored or repaired to such an extent that the use or structure of the restored or repaired property would be substantially the same use or structure, or law and ordinance insurance has been obtained, or a holdback was established and the Mortgagor is required to cause the Property to become a conforming use or structure. 30. Junior Liens. None of the Purchased Loans permits the related 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. Each 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 Property, or any material portion thereof, or a controlling interest in the direct or indirect ownership interests in the Mortgagor is directly or indirectly transferred, sold or pledged. 31. Actions Concerning Purchased Loans. To the knowledge of Seller, there are no actions, suits, governmental investigations or proceedings pending or threatened before any court, governmental authority, administrative agency or arbitrator concerning any Purchased Loan or related Mortgagor or Property that, if determined adversely to the Purchased Loan, Mortgagor, or Property, would adversely affect title to the Purchased Loan or the validity or enforceability of the related Mortgage or that might materially and adversely affect the value of the Property, the current ability of the Property to generate net operating income to service the Mortgage Loan, the principal benefit of the security intended to be provided for the Purchased Loan, or the current use of the Property. 32. Servicing. The servicing and collection practices used by Seller and any servicer of the Mortgage Loan have been in all material respects legal, proper and prudent and have met customary industry standards for servicing of commercial Purchased Loans for conduit programs. VI-10 33. Licenses and Permits. To Seller's knowledge, as of the date of origination of each Purchased Loan, the related Mortgagor was in possession of all material licenses, permits and franchises required by applicable law for the ownership and operation of the related Property as it was then operated and, as of the Purchase Date, the Mortgage Loan Seller has no written notice that the related Mortgagor was not in possession of such licenses, permits and franchises or that such licenses, permits and franchises have not otherwise been issued. The Mortgage Loan requires the related Property to be in material compliance with laws and regulations applicable to the Property, in each case to the extent required by law. 34. Assisted Living Facility Regulation. If any Property is operated as an assisted living facility, to Seller's knowledge, (a) the related Mortgagor and operator, if different, is in compliance in all material respects with all federal and state laws applicable to the use and operation of the related Property and (b) if the operator of the Property participates in Medicare or Medicaid programs, the facility is in compliance in all material respects with the requirements for participation in such programs. 35. Non-Recourse Exceptions. The related Mortgage Loan documents contain provisions providing for recourse against the related Mortgagor, a principal of such Mortgagor or an entity controlled by a principal of such Mortgagor, or a natural person, for damages sustained in connection with the Mortgagor's (i) fraud, (ii) intentional misrepresentation, (iii) misappropriation or misapplication of rents or amounts due lender, insurance proceeds or condemnation proceeds, (iv) voluntary bankruptcy, (v) failure to obtain prior consent to any encumbrance of the pledged equity under the Mezzanine Loan Documents and (vi) willful misconduct resulting in waste of a Property. The related Mortgage Loan documents contain provisions pursuant to which the related Mortgagor, a principal of such Mortgagor or an entity controlled by a principal of such Mortgagor, or a natural person, has agreed to indemnify the mortgagee for damages resulting from violations of any applicable environmental covenants. 36. Single Purpose Entity. The Mortgagor on each Purchased Loan was, as of the origination of the Purchased Loan, a Single Purpose Entity. For this purpose, a "Single Purpose Entity" shall mean an entity, other than an individual, whose organizational documents provide substantially to the effect that it was formed or organized solely for the purpose of owning and operating one or more Properties securing the Purchased Loans and prohibit it from engaging in any business unrelated to such Property or Properties, and whose organizational documents further provide, or which entity represented in the related Purchased Loan documents, substantially to the effect that it does not have any assets other than those related to its interest in and operation of such Property or Properties, or any indebtedness other than as permitted by the related Mortgage or the other related Purchased Loan documents, that it has its own books and records and accounts separate and apart from any other person, that it will not guarantee or assume the debts of any other person, that it will not commingle assets with affiliates, and that it will not transact business with affiliates except on an arm's length basis. Each Mortgagor of a Purchased Loan is an entity which has represented in connection with the origination of the Purchased Loan, or whose organizational documents as of the date of origination of the Purchased Loan provide that so long as the Purchased Loan is outstanding it will have at least one independent director. There are Insolvency/Non-Consolidation opinions VI-11 with respect to the Pledgor and, to Seller's knowledge, all of the assumptions made in each such opinion are true and correct. 37. Separate Tax Parcels. Each Property constitutes one or more complete separate tax lots or is subject to an endorsement under the related title insurance policy. 38. Defeasance. Each 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 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 Mortgagor. 39. Operating or Financial Statement. The related Purchased Loan Documents require the related Mortgagor to furnish to the mortgagee at least quarterly and annually an operating statement and rent roll (if there is more than one tenant) with respect to the related Property and at least annually financial statements of the Mortgagor. 40. Letters of Credit. No Purchased Loan consists of or is secured by a Letter of Credit. 41. Security Interests in Hospitality Properties. If any Property securing a Mortgage Loan is operated as a hospitality property then (a) the security agreements, financing statements or other instruments, if any, related to the Mortgage Loan secured by such Property establish and create a valid and enforceable (subject to the exceptions set forth in Paragraph 13 above) first priority security interest in all items of personal property owned by the related Borrower which are material to the conduct in the ordinary course of the Borrower's business on the related Property, subject only to purchase money security interests, personal property leases and security interests to secure revolving lines of credit and similar financing; and (b) one or more Uniform Commercial Code financing statements covering such personal property have been filed or recorded (or have been sent for filing or recording) wherever necessary to perfect under applicable law such security interests (to the extent a security interest in such personal property can be perfected by the filing of a Uniform Commercial Code financing statement under applicable law). 42. Prepayment Premiums. Prepayment Premiums payable with respect to each Mortgage Loan, if any, constitute "customary prepayment penalties" within meaning of Treasury Regulation Section 1.860G-1(b)(2). 43. Assignment of Collateral. There is no material collateral securing any Mortgage Loan that has not been assigned to the Purchaser. VI-12 44. Fee Simple or Leasehold Interests. The interest of the related Borrower in the Property securing each Mortgage Loan includes a fee simple and/or leasehold estate or interest in real property and the improvements thereon. 45. Appraisals. An appraisal of the related Property was conducted in connection with the origination of the Mortgage Loan, which appraisal is signed by an appraiser, who, to Seller's knowledge, had no interest, direct or indirect, in the Property or the Borrower or in any loan made on the security thereof, and whose compensation is not affected by the approval or disapproval of the Mortgage Loan; in connection with the origination of the Mortgage Loan, each appraiser has represented in such appraisal or in a supplemental letter that the appraisal satisfies the requirements of the "Uniform Standards of Professional Appraisal Practice" as adopted by the Appraisal Standards Board of the Appraisal Foundation. 46. No Capital Contributions. The mortgagee has no obligation to make any capital contributions to the related Borrower under the Mortgage Loan. 47. Due Dates and Grace Periods. The related Mortgage or Mortgage Note provides for Monthly Payments to be made on the first day of each month ("Due Date") and a grace period for Monthly Payments no longer than ten (10) days from the related Due Date. 48. Terrorism Insurance. With respect to each Mortgage Loan, the related all risk insurance policy and business interruption policy did not as of the date of origination of the Mortgage Loan, and, to the Seller's knowledge, does not as of the date hereof, specifically exclude acts of terrorism from coverage. With respect to each of the Mortgage Loans, the related Mortgage Loan documents do not expressly waive or prohibit the mortgagee from requiring coverage for acts of terrorism or damages related thereto, except to the extent that any right to require such coverage may be limited by commercially reasonable availability. 49. Fraud. To Seller's knowledge, no Borrower is guilty of defrauding or making an intentional material misrepresentation to the Mortgage Loan Seller in connection with the origination of the Mortgage Loan. 50. Transfers and Pledges. The Mezzanine Loan Collateral consists of the pledge of all of the ownership interests of the Mortgagor. Transfer and pledge restrictions under the Mezzanine Loan Documents apply to [Name of Sponsor entity], Borrower, Principal, Mortgage Borrower, Mortgage Principal and any Affiliated Manager or any shareholder, partner, member, non-member manager, any direct or indirect legal or beneficial owner of, Mortgage Borrower, Mortgage Principal, Principal, Borrower, any Guarantor, any Affiliated Manager, or any Pledgor, and Affiliated Franchisor or any non-member manager. 51. Management Agreement. The Management Agreement is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice, would constitute a default thereunder. 52. Illegal Activity. To Seller's knowledge, no portion of any Property has been or will be purchased with proceeds of any illegal activity. VI-13 53. Embargoed Person. To the best of Seller's knowledge, (a) none of the funds or other assets of Mortgagor, Mezzanine Borrower, Principal and Guarantor constitute property of, or are beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under U.S. law, including but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder with the result that the investment in Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Mortgage Loan or Purchased Loan made by the Lender is in violation of law ("Embargoed Person"); (b) no Embargoed Person has any interest of any nature whatsoever in Mortgagor, Mezzanine Borrower, Principal or Guarantor, as applicable, with the result that the investment in Mortgagor, Mezzanine Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Mortgage Loan or Purchased Loan is in violation of law; and (c) none of the funds of Mortgagor, Mezzanine Borrower, Principal or Guarantor, as applicable, have been derived from any unlawful activity with the result that the investment in Mortgagor, Mezzanine Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Mortgage Loan or Purchased Loan is in violation of law. 54. Franchise Agreement. The Franchise Agreement and the License granted thereby are in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or giving of notice, would constitute a default thereunder. Mortgage Borrower has all rights to use the License granted under the Franchise Agreement. 55. Lockbox. Any agreements executed in connection with the creation of a Collection Account create a valid and continuing security interest (as defined in the Uniform Commercial Code in effect in the State of New York) in each of such Collection Accounts in favor of Buyer, which security interest is prior to all other liens, and is enforceable as such against creditors of and purchasers from Mortgagor. Each Collection Account constitutes a "deposit account" within the meaning of the Uniform Commercial Code in effect in the State of New York. Seller has directed the Servicer to cause each Depository to agree to comply with all written instructions originated by Buyer, without further consent by Borrower, directing disposition of all sums at any time held, deposited or invested in the Collection Accounts, together with any interest or other earnings thereon, and all proceeds thereof (including proceeds of sales and other dispositions), whether accounts, general intangibles, chattel paper, deposit accounts, instruments, documents or securities. The Collection Accounts are not in the name of any Person other than Mortgagor, as pledgor, or Lender, as pledgee. Seller has not consented to the Depository complying with instructions with respect to the Collection Account from any Person other than Buyer VI-14 EXHIBIT VII REPRESENTATIONS AND WARRANTIES REGARDING EACH INDIVIDUAL MEZZANINE LOAN WHICH IS A MEZZANINE LOAN ---------------------------------------- (1) Mezzanine Loan Information. The information set forth in the Mezzanine Loan Schedule is complete, true and correct in all material respects. (2) No Default or Dispute Under Mezzanine Loan Documents. There exists no material default, breach, violation or event of acceleration (and no event which, with the passage of time or the giving of notice, or both, would constitute any of the foregoing) under the documents evidencing or securing the Mortgage Loan or Mezzanine Loan, in any such case to the extent the same materially and adversely affects the value of the Mezzanine Loan and the related underlying real property. (3) No Offsets, Defenses or Counterclaims. There is no valid right of offset or rescission, defense or counterclaim to such Mortgage Loan or Mezzanine Loan. (4) Equity Pledges. The pledge of ownership interests securing such Mezzanine Loan relates to all or substantially all direct or indirect equity or ownership interests in the underlying real property owner (so that, except for the equity interests pledged to Seller, there are no direct or indirect equity or ownership interests in underlying real property owner or in any constituent entity) and has been fully perfected in favor of Seller as mezzanine lender. (5) Depository Agreement The collection account administrator, if any, is not an Affiliate of Seller. Mezzanine lender has a perfected security interest in the Cash Management Agreement. (6) Enforceability. Mortgage Lender and Mezzanine Lender can rely on opinions from Mortgage Borrower's and Mezzanine Borrower's counsel to the effect that the Mortgage Loan and Mezzanine Loan Documents have been duly and properly executed by the parties thereto, and each is the legal, valid and binding obligation of the parties thereto, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other laws relating to or affecting the rights of creditors generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). The Mezzanine Loan is not usurious. Seller has fully and validly perfected all security interests created or intended to be created pursuant to the Mezzanine Loan Documents. (7) Waivers and Modifications. The terms and provisions of the related Mortgage Loan and Mezzanine Loan Documents have not been impaired, waived, altered, supplemented, restated or modified in any material respect (other than by a written instrument which is included in the related Mortgage Loan and Mezzanine Loan File). (8) Valid Assignment. The assignment of Mezzanine Loan constitutes the legal, valid and binding assignment of such Mezzanine Loan from Seller to or for the benefit of Buyer. No consent or approval by any third party is required for any such assignment of such Mezzanine VII-1 Loan, for Buyer's exercise of any rights or remedies under the assignment of Mezzanine Loan, or for Buyer's sale or other disposition of such Mezzanine Loan if Buyer acquires title thereto, other than consents and approvals which have been obtained. No third party (including underlying real property owner and underlying real property mortgagee) holds any "right of first refusal," "right of first negotiation," "right of first offer," purchase option, or other similar rights of any kind on account of the occurrence of any of the foregoing. No other impediment exists to any such transfer. (9) Certain Representations and Warranties. To Seller's knowledge, after having conducted due diligence customary by Seller and other purchasers of Mezzanine Loans with respect to the Mortgage Loan, Property, Mortgage borrower, Mezzanine Loan, pledged equity, mezzanine borrower, principals and sponsors, all representations and warranties in the Mortgage Loan and Mezzanine Loan Documents are true and correct in all material respects. (10) Parties Authorized. To the extent required under applicable law as of the Purchase Date, each party to the Mezzanine Loan Documents was authorized to do business in the jurisdiction in which the related underlying real property is located at all times when it held the Mezzanine Loan to the extent necessary to ensure the validity and enforceability of such Mezzanine Loan. (11) No Advances of Funds. No party to the Mortgage or Mezzanine Loan Documents has advanced funds on account of any default under the Mortgage or Mezzanine Loan Documents. (12) Servicing. The servicing and collection practices used by Seller for the Mezzanine Loan have complied with applicable law in all material respects and are consistent with those employed by prudent servicers of comparable Mezzanine Loans. (13) No Assignment. Seller has not effectuated any transfer, sale, assignment, hypothecation, or other conveyance of any of its rights and obligations under any Mezzanine Loan Document, except in connection with this Agreement. (14) No Bankruptcy. To Seller's actual knowledge, none of the following parties is a debtor in any state or federal bankruptcy or insolvency proceeding: Seller; underlying real property owner; mortgage loan property owner principal/sponsor, underlying real property mortgagee, mezzanine loan borrower, or mezzanine loan principal/sponsor. (15) Mezzanine Loan Documents. Exhibit [ ] represents a complete list of all material loan documents delivered by the mezzanine borrower in connection with the Mezzanine Loan Agreement and true counterpart originals of the Mezzanine Loan Documents and true and correct copies of the Mortgage Loan Documents have been delivered by Seller to Buyer. (16) Ownership. Seller is the sole owner of the Mezzanine Loan Documents and the related rights described above and that the Mezzanine Loan Documents and the related rights described above are not, and have not been, pledged, nor assigned, to another party and are not otherwise encumbered as of the execution and delivery of this Agreement. VII-2 (17) Organization. Seller is duly organized and is validly existing under the laws of the jurisdiction under which it was organized with full power to execute and deliver this Agreement and that all actions necessary to authorize the execution, delivery, and performance of this Agreement on behalf of Seller have been duly taken, and all such actions continue in full force and effect as of the date hereof. The execution, delivery and performance of this Agreement by Seller does not conflict with the organizational documents of Seller, or with any law, statute or regulation applicable to Seller. (18) Whole Loan; Ownership of Mezzanine Loans. Each Mezzanine Loan is a whole loan and not a participation interest in a whole loan. Immediately prior to the transfer to Buyer of the Mezzanine Loan, Seller had good and marketable title to, and was the sole owner of, each Mezzanine Loan. Seller has full right, power and authority to transfer and assign the Mezzanine Loan 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 Mezzanine Loan free and clear of any and all pledges, liens, charges, security interests, participation interests, and/or other encumbrances. The sale of the Mezzanine Loan to Buyer or its designee does not require Seller to obtain any governmental or regulatory approval or consent that has not been obtained. (19) Payment Record. No scheduled payment of principal and interest under any Mezzanine Loan or related Mortgage Loan was 30 days or more past due as of the Purchase Date without giving effect to any applicable grace period, and no Mezzanine Loan or related Mortgage Loan was 30 days or more delinquent in the twelve-month period immediately preceding the Purchase Date. (20) Lien. The Mortgage and Pledge related to and delivered in connection with each Mortgage Loan and Mezzanine Loan constitutes a valid and enforceable first priority security interest on the related Property and pledged equity, prior to all other liens and encumbrances and there are no liens or encumbrances pari passu with the lien of the Mortgage and pledge. A Uniform Commercial Code financing statement has been filed and/or recorded in all places necessary to perfect a valid security interest in such pledged equity, and such security interest is a first priority security interest. Seller, its successors and assigns is the beneficiary of an Eagle 9 policy or a title policy endorsement insuring that the UCC financing statement encumbering the Mezzanine Loan Collateral has been filed properly so as perfect Mezzanine Lender's security interest in the Mezzanine Loan Collateral. (21) Mortgage and Pledge Status; Waivers and Modifications. In the case of each Mortgage and related Mezzanine Loan, (a) no pledge or related Mortgage has been satisfied, canceled, rescinded or subordinated in whole or in material part, (b) the related pledged equity or Property has not been released from the lien of such pledge or Mortgage, in whole or in material part, (c) no instrument has been executed that would effect any such satisfaction, cancellation, subordination, rescission or release, and (d) no pledgor or Mortgagor has been released from its obligations under the related pledge or Mortgage in whole or in material part. None of the terms of any note or pledge has been impaired, waived, altered or modified in any respect, except by written instruments, all of which are included in the related Loan File. VII-3 (22) Condition of Property; Condemnation. Except as set forth in an engineering report prepared in connection with the origination of the related Mortgage Loan and dated not more than 12 months prior to the Purchase date, each Property is, to Seller's knowledge, free and clear of any damage that would materially and adversely affect its value as security for the related Mortgage Loan (normal wear and tear excepted). Seller has received no notice, and has no knowledge, of any pending or threatened proceeding for the condemnation of all or any material portion of any Property. (23) Title Insurance. Each Property is covered by an American Land Title Association (or an equivalent form thereof approved for use in the applicable jurisdiction) lender's title insurance policy (the "Title Policy") in the original principal amount of the related Mortgage Loan after all advances of principal. Each Title Policy insures that the related Mortgage is a valid first priority lien on such Property, subject only to the exceptions stated therein (or a preliminary title policy with escrow instructions or a marked up title insurance commitment on which the required premium has been paid exists which is binding on the title insurer and 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, insures the originator of the Mortgage Loan, its successors and assigns and, to Seller's knowledge, (i) no material claims have been made thereunder and no claims have been paid thereunder and (ii) was issued by a title insurance company qualified at origination to do business in the jurisdiction in which the Property is located to the extent such qualification was required in order for the Title Policy to be enforceable.. (24) No Holdbacks. The proceeds of each Mezzanine Loan have been fully disbursed and there is no obligation for future advances with respect thereto. (25) Pledge and Mortgage Provisions. The note and pledge for each Mortgage Loan and related Mezzanine Loan, together with applicable state law, contains customary and enforceable provisions for comparable mortgaged properties and equity interests similarly situated (subject to customary bankruptcy and equity exceptions) such as to render the rights and remedies of the holder thereof adequate for the practical realization against the related Property and pledged equity of the principal benefits of the security intended to be provided thereby. (26) Environmental Conditions. With respect to each Property (a) an environmental site assessment (or an update of a previous assessment) was performed by an independent third party environmental consultant with respect to each Property in connection with the origination of the related Mezzanine Loan, (b) a report of each such assessment (an "Environmental Report") is dated no earlier than 12 months prior to the Purchase Date and has been delivered to Buyer, and (c) to Seller's knowledge, there is no violation of applicable environmental laws and regulations with respect to, or any material and adverse environmental condition or circumstance affecting, any Property that was not disclosed in such report. Each Mortgage requires the related Mortgagor to comply with all applicable federal, state and local environmental laws and regulations. Where such Environmental Report disclosed a violation of applicable environmental laws and regulations or the existence of a material and adverse environmental condition or circumstance affecting any Property, (i) a party not related to the Mortgagor was identified as the responsible party for such condition or circumstance, (ii) the related Mortgagor was required either to provide additional security and/or to obtain an operations and maintenance VII-4 plan or (iii) the related Mortgagor provided evidence satisfactory to the originator of such Mortgage Loan that applicable federal, state or local governmental authorities would not take any action, or require the taking of any action, in respect of such violation, condition or circumstance. The related Mezzanine Loan Documents contain provisions pursuant to which the related Mortgagor or a principal of such Mortgagor has agreed to indemnify the mortgagee for damages resulting from violations of any applicable Environmental Laws. (27) Loan Document Status. Each Mortgage Note, Mortgage, Mezzanine Note, Pledge and other agreement that evidences or secures a Mortgage Loan or related Mezzanine Loan and that was executed by or on behalf of the related Mortgagor or Pledgor is the legal, valid and binding obligation of the maker thereof (subject to any non-recourse provisions contained in any of the foregoing agreements and any applicable state anti-deficiency or market value limit deficiency legislation), enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally, and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and there is no valid defense, counterclaim or right of offset or rescission available to the related Mortgagor or Pledgor respect to such Mortgage Note, Mortgage, Mezzanine Note, Pledge, or other agreements. (28) Insurance. Each Property is, and is required pursuant to the related Mortgage to be, insured by (a) an all risk insurance policy issued by an insurer meeting the requirements of such Mortgage Loan and, to the extent required as of the date of origination by the originator of such Mezzanine Loan consistent with its normal commercial mortgage lending practices, against other risks insured against by persons operating like properties in the locality of the Property in an amount not less than the lesser of the principal balance of the related Mezzanine Loan and 100% of the replacement cost (not allowing reduction in insurance proceeds for depreciation) of the Property, and not less than the amount necessary to avoid the operation of any co-insurance provisions with respect to the Property; (b) a business interruption or rental loss insurance policy providing coverage for at least twelve months (other than for manufactured housing communities) and for eighteen months of coverage if the Property is a special purpose property or if the Mortgage Loan is in excess of $25 million; (c) a flood insurance policy (if any portion of the 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, and in any event not less than $1 million per occurrence. Such insurance policy contains a standard mortgagee clause that names the holder of the Mortgage , its successors and assigns as mortgagee as an additional insured in the case of liability insurance policies or as a loss payee in the case of property insurance policies. Such insurance policy is not terminable (nor may the amount of coverage provided thereunder be reduced) without prior written notice to the holder of the Mortgage, and no such notice has been received, including any notice of nonpayment of premiums, that has not been cured. Each Mortgage obligates the related Mortgagor to maintain all such insurance and, upon such Mortgagor's failure to do so, authorizes the holder of the Mortgage to purchase and maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from such Mortgagor. Each Mortgage provides that casualty insurance proceeds will be applied either to the restoration or repair of the related Property or to the reduction or defeasance of the principal amount of the Mezzanine Loan. VII-5 (29) Taxes and Assessments. There are no delinquent or unpaid taxes or assessments (including assessments payable in future installments), or other outstanding charges affecting any Property which are or may become a lien of priority equal to or higher than the lien of the related Mortgage. For purposes of this representation and warranty, real property taxes and assessments shall not be considered unpaid until the date on which interest and/or penalties would be first payable thereon. (30) Mortgagor Bankruptcy. No Mortgagor, Pledgor, non-recourse carve-out guarantor or tenant physically occupying 25% or more (by square feet) of the net rentable area of a Property is a debtor in any state or federal bankruptcy or insolvency proceeding. (31) Leasehold Estate. Each Property consists of the related Mortgagor's fee simple estate in real estate or, if the related Mezzanine Loan is secured in whole or in part by the interest of a Mortgagor as a lessee under a ground lease of a Property (a "Ground Lease"), by the related Mortgagor's interest in the Ground Lease but not by the related fee interest in such Property (the "Fee Interest"). With respect to any Mezzanine Loan secured by a Ground Lease but not by the related Fee Interest: (a) Such Ground Lease or a memorandum thereof has been duly recorded; such Ground Lease (or the related estoppel letter or lender protection agreement between Seller and related lessor) permits the current use of the Property and permits the interest of the lessee thereunder to be encumbered by the related Mortgage and does not restrict the use of the related Property by such lessee, its successors or assigns in a manner that would adversely effect the security provided by the related Mortgage by limiting in any way its current use; and there has been no material change in the terms of such Ground Lease since the origination of the related Mezzanine Loan, with the exception of material changes reflected in written instruments that are a part of the related Mortgage File; (b) The lessee's interest in such Ground Lease is not subject to any liens or encumbrances superior to, or of equal priority with, the related Mortgage, other than the related Fee Interest and Permitted Encumbrances; (c) The Mortgagor's interest in such Ground Lease is assignable to Buyer and is further assignable by Buyer, its successors and assigns upon notice to, but without the consent of, the lessor thereunder (or, if such consent is required, it has been obtained prior to the Purchase Date) and, in the event that it is so assigned, is further assignable by Buyer and its successors and assigns upon notice to, but without the need to obtain the consent of, such lessor. If required by the Ground Lease, the lessor has received notice of the lien of the related Mortgage in accordance with the provisions of the Ground Lease; (d) In connection with the origination of such Mortgage Loan, the related ground lessor provided an estoppel to the originator confirming that the related Mortgagor was not then in default under such Ground Lease. The Ground Lease provides that no material amendment to the Ground lease is effective against the mortgagee under such Mortgage Loan unless the mortgagee has consented thereto. Such Ground Lease is in full force and effect, and Seller and any servicer acting on Seller's behalf have received no notice that an event of default has occurred thereunder or that the Ground lease has terminated, and, to Seller's knowledge, there VII-6 exists no condition that, but for the passage of time or the giving of notice, or both, would result in an event of default under the terms of such Ground Lease; (e) Such Ground Lease, or an estoppel letter or other agreement, (A) requires the lessor under such Ground Lease to give notice of any default by the lessee to the mortgagee, provided that the mortgagee has provided the lessor with notice of its lien in accordance with the provisions of such Ground Lease to the extent such Ground Lease requires such notice, further (B) provides that no notice of termination given under such Ground Lease (including rejection of such Ground Lease in a bankruptcy proceeding) is effective against the holder of the Mortgage unless a copy of such notice has been delivered to such holder and the lessor has offered to enter into a new lease with such holder on terms that do not materially vary from the economic terms of the Ground Lease; (f) A mortgagee is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of the lessee under such Ground Lease by foreclosure or otherwise if possession is necessary to effect a cure) to cure any default under such Ground Lease, which is curable after the receipt of notice of any such default, before the lessor thereunder may terminate such Ground Lease; (g) Such Ground Lease has an original term (including any extension options set forth therein which, under all circumstances, may be exercised, and will be enforceable, by the mortgagee if it takes possession of such leasehold interest) which extends not less than twenty years beyond the stated maturity date of the related Mezzanine Loan and ten years beyond the amortization period for the related Mezzanine Loan; (h) Under the terms of such Ground Lease and the related Mortgage, taken together, any related insurance proceeds or condemnation award other than in respect of a total loss will be applied either to the repair or restoration of all or part of the related Property, with the mortgagee or a trustee appointed by it having the right to hold and disburse such proceeds as the repair or restoration progresses (except in such cases where a provision entitling another party to hold and disburse such proceeds would not be viewed as commercially unreasonable by a prudent commercial mortgage lender for conduit programs), or to the payment or defeasance of the outstanding principal balance of the Mezzanine Loan together with any accrued interest thereon; (i) Such Ground Lease does not impose any restrictions on subletting which would be viewed as commercially unreasonable by prudent commercial mortgage lenders in the lending area where the Property is located and such ground Lease contains a covenant that the ground lessor is not permitted, in the absence of an uncured default, to disturb the possession, interest or quiet enjoyment of the lessee thereunder for any reason or in any manner which would materially adversely affect the security provided by the related Mortgage; and (j) Such Ground Lease provides, or the lessor has otherwise agreed, that such Ground Lease may not be amended or modified or any such amendment or modification will not be effective against the mortgagee without the prior written consent of the mortgagee under such Mezzanine Loan and any such action without such consent is not binding on such mortgagee, its successors and assigns, provided such mortgagee has provided the ground lessor with notice of its lien in accordance with the terms of the Ground Lease. VII-7 (32) Escrow Deposits. All escrow deposits and payments (including capital improvements, environmental remediation reserves and other reserve deposits, if any) relating to each Mortgage Loan and related Mezzanine Loan that are, as of the Purchase Date required to be deposited or paid to the lender under the terms of the related Mortgage Loan Documents have been so deposited or paid and, to the extent of any remaining balances of such escrow deposits, are in the possession or under the control of mortgagee or its agents (which shall include the applicable servicer of the Mortgage Loan). To Seller's knowledge, any and all material requirements under each Mortgage Loan as to completion of any material improvements and as to disbursement of any funds escrowed for such purpose, which requirements were to have been complied with on or before the Purchase Date, have been complied with in all material respects or, if and to the extent not so complied with, the escrowed funds (or an allocable portion thereof) have not been released except in accordance with the terms of the related loan documents. (33) No Mechanics' Liens. As of the date of the Mortgage, and to Seller's knowledge as of the Purchase Date, each Property is free and clear of any and all mechanics' and materialmen's liens that are prior or equal to the lien of the related Mortgage, and no rights are outstanding that under law could give rise to any such lien that would be prior or equal to the lien of the related Mortgage except, in each case, for liens insured against by the Title Policy referred to herein or otherwise bonded. (34) Releases of Property. Except as described in the next sentence, no Mortgage Note or Mortgage requires the mortgagee to release all or any material portion of the related Property from the lien of the related Mortgage except upon payment in full or defeasance of all amounts due under the related Mezzanine Loan. The Mortgages relating to the Mezzanine Loans identified on the Mezzanine Loan Schedule require the mortgagee to grant releases of portions of the related Mortgaged Properties upon (a) the satisfaction of certain legal and underwriting requirements and (b) except where the portion of the Property permitted to be released was not considered by, Seller to be material in the underwriting of the Mezzanine Loan, either (1) the payment of a release price set forth therein and prepayment consideration in connection therewith or (2) the partial defeasance of such Mezzanine Loan. (35) No Material Default. There exists no monetary default and to Seller's knowledge, there exists no material non-monetary default, breach, violation or event of acceleration (and no event which, with the passage of time or the giving of notice, or both, would constitute any of the foregoing) under the documents evidencing or securing the Mortgage Loan or the related Mezzanine Loan, in any such case to the extent the same materially and adversely affects the value of the Mezzanine Loan and the related Property. Neither the Mortgage Loan Seller nor any servicer acting on its behalf has issued any notice of default, breach or violation related to the Mortgage Loan, accelerated the Mortgage Loan or commenced judicial or non-judicial foreclosure proceedings with respect to the Mortgage Loan. Neither the Mezzanine Loan Seller nor any servicer acting on its behalf has issued any notice of default, breach or violation related to the Mezzanine Loan, accelerated the Mezzanine Loan or commenced judicial or non-judicial foreclosure proceedings with respect to the Mezzanine Loan. (36) Local Law Compliance. To Seller's knowledge, the improvements located on or forming part of each Property complies in all material respects with applicable zoning laws and ordinances, or constitutes a legal non-conforming use or structure or, if any such improvement VII-8 does not so comply and does not constitute a legal non-conforming use or structure, such non-compliance and failure does not materially and adversely affect (i) the value of the related Property as determined by the appraisal performed at origination or (ii) the principal use of the Property as of the date of the origination of such Mortgage Loan. To Seller's knowledge, as of the date of origination of the Mortgage Loan, with respect to each legal non-conforming use or structure, if a casualty occurred at that time, the Property could have been restored or repaired to such an extent that the use or structure of the restored or repaired property would be substantially the same use or structure, or law and ordinance insurance has been obtained, or a holdback was established and the Mortgagor is required to cause the Property to become a conforming use or structure. (37) Junior Liens. None of the Mortgage Loans or related Mezzanine Loans permits the related Property or pledged equity to be encumbered by any lien junior to or of equal priority with the lien of the related Mortgage or Pledge without the prior written consent of the holder thereof or the satisfaction of debt service coverage or similar criteria specified therein. The pledged equity is not, and to Seller's knowledge, none of the Mortgaged Properties is encumbered by any lien junior to the lien of the related Mortgage. Each Mezzanine Loan contains a "due on sale" clause that provides for the acceleration of the payment of the unpaid principal balance of the Mezzanine Loan or Mortgage Loan if, without the prior written consent of the holder thereof, the related Property, or any material portion thereof, or pledged equity or a controlling interest in the direct or indirect ownership interests in the Mortgagor is directly or indirectly transferred, sold, or pledged. (38) Actions Concerning Mezzanine Loans. To Seller's knowledge, there are no actions, suits, governmental investigations or proceedings pending or threatened before any court, governmental authority, administrative agency or arbitrator concerning any Mezzanine Loan or Mortgage Loan or the related pledgor or Mortgagor or pledged equity or Property that, if determined adversely, would adversely affect title to the Mezzanine Loan or Mortgage Loan or the validity or enforceability of the related pledge or Mortgage or that might materially and adversely affect the value of the pledged equity or Property, the current ability of the Property to generate net operating income to service the Mortgage Loan, the principal benefit of the security intended to be provided for the Mezzanine Loan or Mortgage Loan, or the current use of the Property. (39) Servicing. The servicing and collection practices used by Seller and any servicer of the Mortgage Loan or related Mezzanine Loan have been in all material respects legal, proper and prudent and have met customary industry standards for servicing of commercial Mortgage or Mezzanine Loans. (40) Licenses and Permits. To Seller's knowledge, the related Mortgagor is in possession of all material licenses, permits and franchises required by applicable law for the ownership and operation of the related Property as it was then operated and, as of the Purchase Date, the Seller has no written notice that the related Mortgagor was not in possession of such licenses, permits and franchises or that such licenses, permits and franchises have not otherwise been issued. The Mortgage Loan requires the related Property to be in material compliance with laws and regulations applicable to the Property, in each case to the extent required by law. VII-9 (41) Non-Recourse Exceptions. The related Mezzanine Loan and Mortgage Loan documents contain provisions providing for recourse against the related Pledgor or Mortgagor, a principal of such Pledgor or Mortgagor or an entity controlled by a principal of such Pledgor or Mortgagor, or a natural person, for damages sustained in connection with the Pledgor's or Mortgagor's (i) fraud, (ii) intentional misrepresentation, (iii) misappropriation or misapplication of rents or amounts due lender, insurance proceeds or condemnation proceeds, (iv) voluntary bankruptcy, (v) failure to obtain prior consent to any encumbrance of the pledged equity under the Mezzanine Loan Documents, (vi) willful misconduct resulting in waste of a Property. The related Mezzanine Loan and Mortgage Loan documents contain provisions pursuant to which the related pledgor or Mortgagor, a principal of such pledgor or Mortgagor or an entity controlled by a principal of such pledgor or Mortgagor, or a natural person, has agreed to indemnify the pledgee or mortgagee for damages resulting from violations of any applicable environmental covenants. (42) Single Purpose Entity. The pledgor and Mortgagor on each Mezzanine Loan and related Mortgage Loan were, as of the origination of the Mezzanine Loan, Single Purpose Entities. For this purpose, a "Single Purpose Entity" shall mean an entity, other than an individual, whose organizational documents provide substantially to the effect that it was formed or organized solely for the purpose of owning the pledged equity or the Mortgaged Properties securing the Mezzanine Loans or Mortgage Loans and prohibit it from engaging in any business unrelated to such pledged equity or Property or Properties, and whose organizational documents further provide, or which entity represented in the related Mezzanine Loan or Mortgage Loan documents, substantially to the effect that it does not have any assets other than those related to its interest in such pledged equity or interest in and operation of such Property or Properties, or any indebtedness other than as permitted by the related Pledge or Mortgage or the other related Mezzanine Loan or Mortgage Loan documents, that it has its own books and records and accounts separate and apart from any other person, and that it holds itself out as a legal entity, separate and apart from any other person, that it will not guarantee or assume the debts of any other person, that it will not commingle assets with affiliates, and that it will not transact business with affiliates except on an arm's length basis. Each Pledgor and Mortgagor of a Mezzanine Loan and Mortgage Loan is an entity which has represented in connection with the origination of the Mezzanine Loan or Mortgage Loan, or whose organizational documents as of the date of origination of the Mezzanine Loan or Mortgage Loan provide that so long as the Mezzanine Loan is outstanding it will have at least one independent director. There are Insolvency/Non-Consolidation opinions with respect to each of the Pledgor and Mortgagor and, to Seller's knowledge, all of the assumptions made in each such opinion are true and correct. (43) Separate Tax Parcels. Each Property constitutes one or more complete separate tax lots or is subject to an endorsement under the related title insurance policy. (44) Operating or Financial Statements. The related Mezzanine Loan Documents require the related Mortgagor to furnish to the mortgagee at least quarterly and annually an operating statement and rent roll (if there is more than one tenant) with respect to the related Property and at least annually financial statements of the Mortgagor. (45) Security Interests in Hospitality Properties. If any Property securing a Mortgage Loan is operated as a hospitality property then (a) the security agreements, financing statements VII-10 or other instruments, if any, related to the Mortgage Loan secured by such Property establish and create a valid and enforceable (subject to the exceptions set forth in Paragraph 13 above) first priority security interest in all items of personal property owned by the related Borrower which are material to the conduct in the ordinary course of the Borrower's business on the related Property, subject only to purchase money security interests, personal property leases and security interests to secure revolving lines of credit and similar financing; and (b) one or more Uniform Commercial Code financing statements covering such personal property have been filed or recorded (or have been sent for filing or recording) wherever necessary to perfect under applicable law such security interests (to the extent a security interest in such personal property can be perfected by the filing of a Uniform Commercial Code financing statement under applicable law). (46) Assignment of Collateral. There is no material collateral securing any Mortgage Loan that has not been assigned to the Purchaser. (47) Fee Simple or Leasehold Interests. The interest of the related Borrower in the Property securing each Mortgage Loan includes a fee simple and/or leasehold estate or interest in real property and the improvements thereon. (48) Assignment of Collateral. There is no material collateral securing any Mezzanine Loan that has not been assigned to the Purchaser. (49) Terrorism Insurance. With respect to each Mortgage Loan, the related all risk insurance policy and business interruption policy did not as of the date of origination of the Mortgage Loan, and, to the Seller's knowledge, does not as of the date hereof, specifically exclude acts of terrorism from coverage. With respect to each of the Mortgage Loans, the related Mortgage Loan documents do not expressly waive or prohibit the mortgagee from requiring coverage for acts of terrorism or damages related thereto, except to the extent that any right to require such coverage may be limited by commercially reasonable availability. (50) Transfers and Pledges. The Mezzanine Loan Collateral consists of the pledge of all of the ownership interests of the Mortgagor. Transfer and pledge restrictions under the Mezzanine Loan Documents apply to [Name of Sponsor entity], Borrower, Principal, Mortgage Borrower, Mortgage Principal and any Affiliated Manager or any shareholder, partner, member, non-member manager, any direct or indirect legal or beneficial owner of, Mortgage Borrower, Mortgage Principal, Principal, Borrower, any Guarantor, any Affiliated Manager, or any Pledgor, and Affiliated Franchisor or any non-member manager. (51) Management Agreement. The Management Agreement is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice, would constitute a default thereunder. (52) Illegal Activity. To Seller's knowledge, no portion of any Property has been or will be Mezzanine with proceeds of any illegal activity. (53) Embargoed Person. To the best of Seller's knowledge, (a) none of the funds or other assets of Mortgagor, Mezzanine Borrower, Principal and Guarantor constitute property of, or are beneficially owned, directly or indirectly, by any person, entity or government subject to VII-11 trade restrictions under U.S. law, including but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder with the result that the investment in Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Mortgage Loan or Mezzanine Loan made by the Lender is in violation of law ("Embargoed Person"); (b) no Embargoed Person has any interest of any nature whatsoever in Mortgagor, Mezzanine Borrower, Principal or Guarantor, as applicable, with the result that the investment in Mortgagor, Mezzanine Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Mortgage Loan or Mezzanine Loan is in violation of law; and (c) none of the funds of Mortgagor, Mezzanine Borrower, Principal or Guarantor, as applicable, have been derived from any unlawful activity with the result that the investment in Mortgagor, Mezzanine Borrower, Principal or Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Mortgage Loan or Mezzanine Loan is in violation of law. (54) Franchise Agreement. The Franchise Agreement and the License granted thereby are in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or giving of notice, would constitute a default thereunder. Mortgage Borrower has all rights to use the License granted under the Franchise Agreement. (55) Lockbox. Any agreements executed in connection with the creation of a Collection Account create a valid and continuing security interest (as defined in the Uniform Commercial Code in effect in the State of New York) in each of such Collection Accounts in favor of Buyer, which security interest is prior to all other liens, and is enforceable as such against creditors of and purchasers from Mortgagor. Each Collection Account constitutes a "deposit account" within the meaning of the Uniform Commercial Code in effect in the State of New York. Seller has directed the Servicer to cause each Depository to agree to comply with all written instructions originated by Buyer, without further consent by Borrower, directing disposition of all sums at any time held, deposited or invested in the Collection Accounts, together with any interest or other earnings thereon, and all proceeds thereof (including proceeds of sales and other dispositions), whether accounts, general intangibles, chattel paper, deposit accounts, instruments, documents or securities. The Collection Accounts are not in the name of any Person other than Mortgagor, as pledgor, or Lender, as pledgee. Seller has not consented to the Depository complying with instructions with respect to the Collection Account from any Person other than Buyer. (56) Compliance with Usury and Other Laws. The Mezzanine Loan, and, to Seller's knowledge, each party involved in the origination of the Mezzanine 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 applicable to the Mezzanine Loan have been complied with. (57) Authorized to do Business. To the extent required under applicable law, Seller is authorized to transact and do business in each jurisdiction in which a Mortgaged Property is located at all times when it held the Mezzanine Loan. VII-12 (58) Mezzanine Loan Documents. The Mezzanine Loan Documents contain provisions for the acceleration of the payment of the unpaid principal balance of the Mezzanine Loan if (A) the Obligor voluntarily transfers or encumbers all or any portion of any related Mezzanine collateral, or (B) any direct or indirect interest in Obligor is voluntarily transferred or assigned, other than, in each case, as permitted under the terms and conditions of the Mezzanine Loan Documents. (59) No Limitation on Assignability in Mezzanine Loan Documents. Except as expressly stated in the Mezzanine Loan Documents, Seller's ability to assign, transfer and convey the Mezzanine Loan to any other person or entity is not limited or prohibited by any provision contained in the Mezzanine Loan Documents. (60) Collateral Secures Mezzanine Loans Only. The Mezzanine collateral does not secure any mezzanine loan other than the Mezzanine Loan being transferred and assigned to the Buyer hereunder (except for Mezzanine Loans, if any, which are cross-collateralized with other Mezzanine Loans being conveyed to the Buyer or subsequent transferee hereunder and identified on the Asset Schedule) VII-13 EXHIBIT VIII Loan Information Investment & Loan Set-Up ------------------------ I. Investment Background Investment name and location: Borrower and principals: . Type of investment: CTIMCO deal team: CTIMCO Closing Attorney: Closing Date: CT Funding Date: Investment Amount: Premium/discount (% and $ amount): Adjusted gross investment commitment: Participants: Repo Advance Rate: Net CT investment commitment: Net CT investment funded at closing: Net CT investment unfunded commitment: Accrued interest acquired ($): II. Rate/Term/Fees/Guarantees/Reserves Interest rate (floating/fixed): LIBOR in place at CT funding date: LIBOR Floor: Amount of LIBOR Floor: Interest due date: Interest rate re-set date: Interest Accrual Period: 1st Interest Payment Due Date: Rate if fixed: Index if floating: Rounding factor for index: VIII-1 Spread if floating: Calculation basis: Pay/accrual: Contingent interest: Amortization: Stub Interest (days): Stub Interest ($): Lock Box: Servicing Fee: Special Servicing Fee: Trustee Servicing Fee: Initial term: Maturity date: Origination/Commitment Fee: Due Diligence Deposit: Application Fee: Additional Interest (Exit): Extension Term: Extended Maturity date: Additional Interest (Extension): Prepayment/Defeasance: Reserves: --------- Initial Tax Escrow: Required Repairs Reserve: Liquidity Reserve: Tax escrows: Insurance escrows: Total Reserves: Payment Guarantee (amount): Guarantor: Guaranty Collateral: Lock-Out/Call Protection: Financial Reporting Requirements: Monthly Statements: Quarterly Statements: Annual Statements: Annual Budget: VIII-2 III. Seller/Repo Financing Firm: Advance Rate: Cost of Financing: Contact: IV. Senior / Junior Financing First Mortgage Loan: Senior Mezzanine Loan: Junior Mezzanine Loan: V. Summary of Participation Rights: 1) VI. Hedging Information Senior Loan Interest Rate Cap: ------------------------------ Date of Agreement: Notional Amount: Strike Prices: Cost: Beneficiary: Counterparty: Placement Agent: Senior Mezzanine Loan Interest Rate Cap: ---------------------------------------- Date of Agreement: Notional Amount: Strike Prices: Cost: Beneficiary: Counterparty: VIII-3 Placement Agent: Junior Mezzanine Loan Interest Rate Cap: ---------------------------------------- Date of Agreement: Notional Amount: Strike Prices: Cost: Beneficiary: Counterparty: Placement Agent: VII. Non-Reimbursable Transaction Expenses Legal Fees Meals Travel/Airfare Insurance Review Total VIII-4 EXHIBIT IX TRANSACTION PROCEDURE --------------------- Preliminary Approval of New Loan Which is an Eligible Loan. ---------------------------------------------------------- (a) Seller may, from time to time, submit to Buyer a Preliminary Due Diligence Package for Buyer's review and approval in order to enter into a Transaction with respect to any New Loan that Seller proposes to be included as an Eligible Loan under this Agreement. (b) Buyer shall have the right to request additional diligence materials and deliveries that Buyer shall specify on a Supplemental Due Diligence List. Within five (5) Business Days after Buyer's receipt of the Preliminary Due Diligence Package, Buyer shall either (i) notify Seller of the Purchase Price and the Market Value for the New Loan, subject to documentation satisfactory to Buyer, (ii) request additional diligence materials or (iii) deny, in Buyer's sole and absolute discretion, Seller's request for a Transaction. Within five (5) Business Days after receipt of all additional diligence materials, Buyer shall either approve or deny the proposal to include such Eligible Loan. Final Approval of New Loan which is an Eligible Loan. Upon Buyer's notification to Seller of the Purchase Price and the Market Value for any New Loan which is an Eligible Loan, Seller shall, if Seller desires to enter into a Transaction with respect to such New Loan, satisfy the conditions set forth below (in addition to satisfying the conditions precedent to obtaining each advance, as set forth in Section 2(b) of this Agreement) as a condition precedent to Buyer's approval of such New Loan as an Eligible Loan, all in a manner reasonably satisfactory to Buyer and subject to documentation satisfactory to Buyer: (a) Delivery of Purchased Loan Documents. Seller shall deliver to Buyer: (i) with respect to a New Loan that is a Pre-Existing Loan, each of the Purchased Loan Documents, except Purchased Loan Documents that Seller expressly and specifically disclosed in Seller's Preliminary Due Diligence Package were not in Seller's possession; and (ii) with respect to a New Loan that is an Originated Loan, each of the Purchased Loan Documents. (b) Environmental and Engineering. Buyer shall have received a satisfactory "Phase 1" (and, if necessary, a satisfactory "Phase 2") environmental report, an asbestos survey, if applicable, and an engineering report, each in form reasonably satisfactory to Buyer, by an engineer or environmental consultant reasonably approved by Buyer. (c) Appraisal. Buyer shall have received either an appraisal approved by Buyer (or a Draft Appraisal, if Buyer approves such Draft Appraisal in lieu of a final appraisal), each by an MAI appraiser. If Buyer receives only a Draft Appraisal prior to entering into a Transaction, Seller shall deliver an appraisal approved by Buyer by an MAI appraiser on or before thirty (30) days after the Purchase Date. (d) Insurance. Buyer shall have received certificates or other evidence of insurance demonstrating insurance coverage in respect of the Property of types, in IX-1 amounts, with insurers and otherwise in compliance with the terms, provisions and conditions set forth in the Purchased Loan Documents. Such certificates or other evidence shall indicate that Seller will be named as an additional insured under liability policies as its interest may appear and shall contain a loss payee endorsement under casualty policies in favor of Seller with respect to the policies required to be maintained under the Purchased Loan Documents. (e) Survey. Buyer shall have received all surveys of the Property that are in Seller's possession. (f) 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 title updates conducted by search firms and/or title companies acceptable to Buyer with respect to the Eligible Loan, Property, Seller and Mortgagor, such searches to be conducted in each location Buyer shall designate. (g) Opinions of Counsel. Buyer shall have received copies of all legal opinions in Seller's possession with respect to the Eligible Loan which shall be in form and substance satisfactory to Buyer. (h) Additional Real Estate Matters. Seller shall have delivered to Buyer to the extent in Seller's possession such other real estate related certificates and documentation as may have been requested by Buyer, such as: (i) certificates of occupancy issued by the appropriate Governmental Authority and either letters certifying that the Property is in compliance with all applicable zoning laws issued by the appropriate Governmental Authority of evidence that the related Title Policy includes a zoning endorsement and (ii) copies of all leases in effect at the Property and estoppel certificates that were required in the origination of the applicable loan from any ground lessor and from any tenants . (i) Other Documents. Buyer shall have received such other documents as Buyer or its counsel shall reasonably deem necessary. IX-2 EXHIBIT X [RESERVED] X-1 EXHIBIT XI [RESERVED] XI-1 EXHIBIT XII FORM OF OPINION OF COUNSEL TO SELLER 1. Seller is duly organized and validly existing as a corporation in good standing under the laws of the State of Maryland and has power and authority to enter into and perform its obligations under this Agreement and the Custodial Agreement. Seller is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business transacted by it requires such qualification and in which the failure so to qualify would have a material adverse effect on the business, properties, assets or condition (financial or other) of Seller and its subsidiaries, considered as a whole. 2. This Agreement and the Custodial Agreement have each been duly authorized, executed and delivered by Seller, and each constitutes a valid and legally binding obligation of Seller enforceable against Seller in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights generally and to general equity principles. 3. No consent, approval, authorization or order of any state or federal court or government agency or body is required to be obtained by Seller for the consummation of the transactions contemplated by this Agreement or the Custodial Agreement. 4. The consummation of any of the transactions contemplated by this Agreement and the Custodial Agreement will not conflict with, result in a breach of, or constitute a default under the articles of incorporation or bylaws of Seller or the terms of any indenture or other agreement or instrument known to us to which Seller is party or bound, or any order known to such counsel to be applicable to Seller or any regulations applicable to Seller, of any state or federal court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over Seller. 5. There is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator involving Seller or relating to the transaction contemplated by this Agreement or the Custodial Agreement which, if adversely determined, would have a material adverse effect on Seller. XII-1 EXHIBIT XIII FORM OF BAILEE AGREEMENT Capital Trust, Inc. 410 Park Avenue 14th Floor New York, New York 10022 ________________ __, 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 under a Master Repurchase Agreement by Capital Trust, Inc. (the "Seller") to Bear, Stearns Funding, Inc. (the "Buyer") -------------------------------------------------------------- Ladies and Gentlemen: 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 delivered by the Seller (the "Purchase 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 Purchase 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 (as defined in that certain Custodial Agreement dated XIII-1 as of August 16, 2005, 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 August 17, 2005, among Seller and Buyer (the "Master Repurchase Agreement"). 4. On the applicable Purchase 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) 230-7830 to the attention of Robert J. Grados, Esq., an authorization (the "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 Purchase Date, the Bailee shall forward the Purchased Loan Files to Deutsche Bank Trust Company Americas, 1761 East St. Andrew Place, Santa Ana, California 92705, Attention: Mortgage Custody-QT031C (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 Purchase Date (the "Delivery Date"). 6. From and after the applicable Purchase 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 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 a 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, XIII-2 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 Seller in connection with negotiation, execution and delivery of the Master 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 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 the 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. XIII-3 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 Master Repurchase Agreement. [signatures begin on next page] XIII-4 Very truly yours, CAPITAL TRUST, INC., a Maryland corporation By: ----------------------------- Name: Title: ACCEPTED AND AGREED: PAUL, HASTINGS, JANOFSKY & WALKER LLP, Bailee By: -------------------------------------------------- Name: Robert J. Grados ACCEPTED AND AGREED: BEAR, STEARNS FUNDING, INC. By: -------------------------------------------------- Name: Title: XIII-5 Schedule A [List of Documents in the Purchased Loan File] XIII-6 Attachment 1 IDENTIFICATION CERTIFICATE On this _____ day of ____________, 2005, Capital Trust, Inc. (the "Seller"), under that certain Bailee Agreement of even date herewith (the "Bailee Agreement"), among the Seller, PAUL, HASTINGS, JANOFSKY & WALKER LLP, (the "Bailee"), and BEAR, STEARNS FUNDING, INC., as Buyer, does hereby instruct the Bailee to hold, in its capacity as Bailee, the Purchased Loan Files with respect to the Purchased Loans listed on Exhibit A hereto, which Purchased 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 Seller has caused this Identification Certificate to be executed and delivered by its duly authorized officer as of the day and year first above written. CAPITAL TRUST, INC., Seller By: ----------------------------- Name: Title: XIII-7 Exhibit A to Attachment 1 PURCHASED LOAN SCHEDULE XIII-8 Attachment 2 FORM OF TRUST RECEIPT ________________ __, 200_ Bear, Stearns Funding, Inc. 383 Madison Avenue New York, New York 10179 Re: Bailee Agreement, dated as of ___________ __, 200__ (the "Bailee Agreement") among Capital Trust, Inc. (the "Seller"), Bear, Stearns Funding, Inc. (the "Buyer") and Paul, Hastings, Janofsky & Walker LLP (the "Bailee") Ladies and Gentlemen: 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 Purchased Loan described in the Purchased Loan Schedule (Exhibit A to Attachment 1), a copy of which is attached hereto, it has reviewed the Purchased Loan File and has determined that (1) 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 Purchased 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 Purchased Loan File as agent and bailee for the exclusive use and benefit of the Buyer 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. XIII-9 SCHEDULE 1-A ------------ Form of UCC Financing Statement Debtor: Secured Party: Capital Trust, Inc. Bear, Stearns Funding, Inc. 410 Park Avenue, 14th Floor 383 Madison Avenue New York, New York 10022 New York, New York 10179 ATTACHMENT A TO UCC FINANCING STATEMENT This filing is for protective purposes only with respect to the Purchased Loans 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) 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. "Buyer" means Secured Party. "Custodian" means Deutsche Bank Trust Company Americas or any successor Custodian appointed by Buyer. "Eligible Loans" means any of the following types of loans listed in (i) through (iv) below: (i) Whole Loans (as defined in the Repurchase Agreement) that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person) commercial mortgage loans secured by first liens on multifamily and commercial real property with respect to which the ratio of loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing directly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu 1-A-1 with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. (ii) Subordinate interests in Whole Loans ("B Notes") that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person), commercial mortgage loans secured by first liens on multifamily and commercial real property with respect to which the ratio of loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing directly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. (iii) Mezzanine Loans (as defined in the Repurchase Agreement) that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person) and with respect to which the ratio of total loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing indirectly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. (iv) any other investment presented to and approved by Buyer in its sole discretion which does not conform to the criteria set forth in clauses (i), (ii) and (iii) above and which Buyer elects in its sole discretion to purchase. "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, with Buyer or its Affiliates as counterparties or one or more other counterparties acceptable to Buyer. "Income" means, with respect to any Purchased Loan at any time, any principal (including any principal prepayments) thereof and all interest, dividends or other distributions thereon and with respect to any associated Hedging Transaction, all proceeds thereof. "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 6(b) of the Repurchase Agreement, together with any additional documents and 1-A-2 information required to be delivered to Buyer or its designee (including the Custodian) pursuant to the Repurchase Agreement. "Purchased Loans" means (i) with respect to any Transaction, the Eligible Loans sold by Seller to Buyer in such Transaction until such Eligible Loans are repurchased by Seller pursuant to this Agreement and (ii) with respect to the Transactions in general, all Eligible Loans sold by Seller to Buyer and any Additional Loans delivered by Seller to Buyer pursuant to Section 3(a) of the Repurchase Agreement until (x) such Eligible Loans are repurchased by Seller pursuant to the Repurchase Agreement or (y) such Additional Loans are re-delivered to Seller by Buyer pursuant to Section 3 of the Repurchase Agreement. "Repurchase Agreement" means that certain Master Repurchase Agreement dated as of August 16, 2005, between Bear, Stearns Funding, Inc. and Capital Trust, Inc., (together 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 $__________)], dated as of _______, made by ___________. to _________ under and pursuant to that certain Loan Agreement dated as of ________ between _________ and _________ and secured by that certain property located in _________, [as such B Participation Interest was assigned by _________ to Capital Trust, Inc. pursuant to that certain Assignment and Assumption Agreement (Participation B) dated as of _________]. 2. [$__________ [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 Capital Trust, Inc. pursuant to that certain Omnibus Assignment dated as of _________]. 1-A-3 SCHEDULE 1-B ------------ Form of UCC Financing Statement Amendment Debtor: Secured Party: Capital Trust, Inc. Bear, Stearns Funding, Inc. 410 Park Avenue, 14th Floor 383 Madison Avenue New York, New York 10022 New York, New York 10179 ATTACHMENT A TO UCC FINANCING STATEMENT AMENDMENT This filing is for protective purposes only with respect to the Purchased Loans 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) 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. "Buyer" means Secured Party. "Custodian" means Deutsche Bank Trust Company Americas or any successor Custodian appointed by Buyer. "Eligible Loans" means any of the following types of loans listed in (i) through (iv) below: (i) Whole Loans (as defined in the Repurchase Agreement) that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person) commercial mortgage loans secured by first liens on multifamily and commercial real property with respect to which the ratio of loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing directly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu 1-B-1 with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. (ii) Subordinate interests in Whole Loans ("B Notes") that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person), commercial mortgage loans secured by first liens on multifamily and commercial real property with respect to which the ratio of loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing directly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. (iii) Mezzanine Loans (as defined in the Repurchase Agreement) that are performing (i.e., current and not in monetary or material non-monetary default such that remedies can be exercised by any Person) and with respect to which the ratio of total loan to value as determined by Buyer, in the exercise of its commercially reasonable judgment, for the real property securing indirectly such loan (including for purposes of this calculation, such loan and any loan senior to or pari passu with such loan and secured, directly or indirectly, by the related property) does not exceed the percentage stated in the Confirmation. (iv) any other investment presented to and approved by Buyer in its sole discretion which does not conform to the criteria set forth in clauses (i), (ii) and (iii) above and which Buyer elects in its sole discretion to purchase. "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, with Buyer or its Affiliates as counterparties or one or more other counterparties acceptable to Buyer. "Income" means, with respect to any Purchased Loan at any time, any principal (including any principal prepayments) thereof and all interest, dividends or other distributions thereon and with respect to any associated Hedging Transaction, all proceeds thereof. "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 6(b) of the Repurchase Agreement, together with any additional documents and 1-B-2 information required to be delivered to Buyer or its designee (including the Custodian) pursuant to the Repurchase Agreement. "Purchased Loans" means (i) with respect to any Transaction, the Eligible Loans sold by Seller to Buyer in such Transaction until such Eligible Loans are repurchased by Seller pursuant to this Agreement and (ii) with respect to the Transactions in general, all Eligible Loans sold by Seller to Buyer and any Additional Loans delivered by Seller to Buyer pursuant to Section 3(a) of the Repurchase Agreement until (x) such Eligible Loans are repurchased by Seller pursuant to the Repurchase Agreement or (y) such Additional Loans are re-delivered to Seller by Buyer pursuant to Section 3 of the Repurchase Agreement. "Repurchase Agreement" means that certain Master Repurchase Agreement dated as of August 17, 2005, between Bear, Stearns Funding, Inc. and Capital Trust, Inc., (together 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 $__________)], dated as of _______, made by ___________. to _________ under and pursuant to that certain Loan Agreement dated as of ________ between _________ and _________ and secured by that certain property located in _________, [as such B Participation Interest was assigned by _________ to Capital Trust, Inc. pursuant to that certain Assignment and Assumption Agreement (Participation B) dated as of _________]. 2. [$__________ [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 Capital Trust, Inc. pursuant to that certain Omnibus Assignment dated as of _________]. 1-B-3 EX-10 5 ex10-4.txt EX. 10.4 Exhibit 10.4 Bear, Stearns Funding, Inc. 383 Madison Avenue New York, New York 10179 August 16, 2005 Capital Trust, Inc. 410 Park Avenue New York, New York 10022 Re: Pricing Terms for Master Repurchase Agreement, dated as of August 16, 2005, by and between Bear, Stearns Funding, Inc. and Capital Trust, Inc. --------------------------------------------------- Ladies and Gentlemen: Reference is made to the Master Repurchase Agreement, dated as of August 16, 2005 (the "Agreement"), by and between Bear, Stearns Funding, Inc. ("Buyer") and Capital Trust, Inc. ("Seller"). The purpose of this letter agreement (the "Letter Agreement") is to set forth certain terms governing the circumstances under which the Buyer will enter into Transactions pursuant to the Agreement. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Agreement. 1. Buyer's Margin Ratio: Unless otherwise agreed by the parties (which agreement shall be documented in the related Confirmation), the Purchase Price on any Purchase Date prior to the Commitment Expiration Date shall be equal to the product of the Market Value of the Purchased Loans and the applicable Buyer's Margin Ratio listed in the chart below. 2. Purchase Fee: The Purchase Fee shall be a one-time, up front amount, to be paid by Seller on the initial Transaction Date, equal to the product of (i) the Maximum Aggregate Purchase Price and (ii) [****]%. 3. Pricing Rate: The Pricing Rate with respect to each Transaction shall be one month LIBOR plus the spread listed in the chart below (unless otherwise agreed by the parties, which agreement shall be documented in the related Confirmation): - ------------------ **** Material omitted pursuant to a request for confidential treatment under Rule 24b-2. Material filed separately with the Securities and Exchange Commission.
Buyer's Margin Ratio and Pricing Rate Spread -------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Combined Property/ 50.0% 55.0% 60.0% 65.0% 70.0% 75.0% 80.0% 85.0% Underlying Assets Loan to Value Ratio - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Mezzanine Loans, Junior Participations & B Notes - -------------------------------------------------------------------------------------------------------------------------------- Buyer's Margin Ratio [****] [****] [****] [****] [****] [****] [****] [****] Pricing Rate Spread (LIBOR plus number of basis points) [****] [****] [****] [****] [****] [****] [****] [****] - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
All loan to value ratios are determined by a third-party appraiser mutually acceptable to Buyer and Seller. If an Eligible Asset is a hotel, the Buyer's Margin Ratio and the Pricing Rate may change as agreed to by the parties. 4. Seller must enter into Transactions with respect to at least five (5) Eligible Loans within six (6) months of the initial Purchase Date (the "Required Transactions") in order to maintain the Buyer's Margin Ratios set forth above. If Seller does not enter into the Required Transactions, Buyer shall have the right in its sole discretion to reduce the Buyer's Margin Ratios as follows: if Seller enters into Transactions with respect to three (3) or four (4) Eligible Loans, the applicable Buyer's Margin Ratios shall be reduced by five percent (5%) and if Seller enters into Transactions with respect to one (1) or two (2) Eligible Loans, the applicable Buyer's Margin Ratios shall be reduced by ten percent (10%). 5. If Buyer exercises its right to reduce the Buyer's Margin Ratio as provided in paragraph 3 above within six (6) months prior to the Commitment Expiration Date and Seller elects to effect an Early Repurchase Date after Buyer has exercised such right, then no Exit Fee shall be due or payable with respect to such Early Repurchase Date. The terms of this Letter Agreement shall supersede all prior Letter Agreements between the parties. The terms and provisions set forth in this Letter Agreement shall terminate upon the termination of the Agreement. Any agreement by Buyer to extend the term of the Agreement shall not thereby extend any of the terms and provisions set forth herein with respect to any Transactions entered into on or after any renewal of the Agreement, unless expressly agreed to by Buyer. - ------------------ **** Material omitted pursuant to a request for confidential treatment under Rule 24b-2. Material filed separately with the Securities and Exchange Commission. This Letter Agreement may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument. This Letter Agreement shall be governed by the laws of the State of New York without giving effect to the conflicts of law principles thereof. In the event of any inconsistency between the terms and provisions contained herein and the Agreement, the terms and provisions of this Letter Agreement shall govern. BEAR, STEARNS FUNDING, INC. By: /s/ Michael A. Forastiere ----------------------------- Name: Michael A. Forastiere Title: Vice President Acknowledged and Agreed: CAPITAL TRUST, INC. By: /s/ Geoffrey G. Jervis -------------------------- Name: Geoffrey G. Jervis Title: Chief Financial Officer EX-31 6 ex31-1.txt EX. 31.1 Exhibit 31.1 CERTIFICATION PURSUANT TO 17 CFR 240.13a-14 PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2003 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting 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; and 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: October 31, 2005 /s/ John R. Klopp ------------------------ John R. Klopp Chief Executive Officer EX-31 7 ex31-2.txt EX. 31.2 Exhibit 31.2 CERTIFICATION PURSUANT TO 17 CFR 240.13a-14 PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Geoffrey G. Jervis, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting 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; and 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: October 31, 2005 /s/ Geoffrey G. Jervis ------------------------ Geoffrey G. Jervis Chief Financial Officer EX-32 8 ex32-1.txt EX. 32.1 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, 2005 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 October 31, 2005 EX-32 9 ex32-2.txt EX. 32.2 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, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Geoffrey G. Jervis, 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/ Geoffrey G. Jervis - -------------------- Geoffrey G. Jervis Chief Financial Officer October 31, 2005 -----END PRIVACY-ENHANCED MESSAGE-----