EXECUTION VERSION
Exhibit 10.4
NETTING AND SECURITY AGREEMENT
Netting and Security Agreement, dated as of June 26, 2003, between and among
Bear, Xxxxxxx International Limited, CRIIMI Newco LLC and CBO REIT II, Inc..
Reference is made to that certain (i) Repurchase Agreement, dated as of January
14, 2003, entered into among Bear, Xxxxxxx International Limited ("BSIL"),
CRIIMI Newco LLC ("Newco") and CBO REIT II, Inc. ("REIT" and together with
Newco, "CRIIMI") and all schedules and annexes thereto, as amended
(collectively, the "Repurchase Agreement"); and (ii) ISDA Master Agreement,
dated as of June 26, 2003, entered into among BSIL, Newco and REIT, and all
schedules and annexes thereto and any confirmations thereunder (collectively,
the "Swap"). Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Repurchase Agreement and/or the Swap, as
applicable.
BSIL, on the one hand, and Newco and REIT, jointly and severally, on the
other hand, agree that:
(A) (i) To secure the prompt payment and performance of their joint and
several obligations under the Repurchase Agreement and the Swap,
Newco and REIT hereby grant to BSIL a valid, continuing security
interest in all of their right, title and interest in the Assets
defined below (referred to herein as the "Collateral"), provided,
however, notwithstanding anything to the contrary contained herein,
the Assets shall not include the Subject Securities that are owned
by either REIT Subsidiary (as such terms are defined in the Repurchase
Agreement). All Collateral shall be, to the fullest extent of any
rights of CRIIMI in such Collateral, collateral and margin under and in
connection with each of the Repurchase Agreement and the Swap without
regard to the identity of the agreement pursuant to which any request
for transfer of Collateral may have been made
(and the Repurchase Agreement and Swap are hereby supplemented and/or
amended accordingly). "Assets" shall mean (i) all property now or
hereafter held or carried by BSIL under or in connection with the
Repurchase Agreement or the Swap, (ii) all contract rights CRIIMI may
now or hereafter have against BSIL under the Swap or the Repurchase
Agreement, including rights related to a Margin Excess (it being
understood and agreed that CRIIMI is not releasing or waiving any
claims or causes of actions it may now or hereafter have against BSIL
under the Swap, the Repurchase Agreement or this Netting and Security
Agreement), and (iii) all proceeds of or distributions on any of the
foregoing. Nothing contained in this Netting and Security Agreement
shall be construed to affect the validity of the characterization of
the transaction under the Repurchase Agreement as a purchase and
sale of securities. Notwithstanding anything to the contrary
contained in this Netting and Security Agreement, unless an Event of
Default (defined below) shall have occurred and be continuing CRIIMI
shall have the right (a) to direct the exercise of all voting,
consent and other control rights with respect to the Purchased Assets,
and (b) to receive all cash, dividends, interest and other
distributions from, on, attributable or related to the Purchased Assets,
in each case subject only to the terms and conditions set forth in the
Repurchase Agreement.
(ii) CRIIMI agrees that with respect to Collateral and the delivery of
Collateral (to the extent applicable), CRIIMI will take such action
as is necessary to cooperate with BSIL, and CRIIMI hereby irrevocably
appoints BSIL to be CRIIMI's attorney in fact and CRIIMI's agent
("attorney") (with full powers of substitution and delegation) to
act in CRIIMI's name and on CRIIMI's behalf and as CRIIMI's act and
deed or otherwise under a power coupled with an interest to execute,
sign, seal, deliver, and file any
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documents which BSIL may reasonably require for perfecting or preserving
its security interest in the Collateral, or, upon the occurrence of
an Event of Default (as defined below), vesting the Collateral in
BSIL, and otherwise generally to sign, seal and deliver and otherwise
perfect and preserve any such legal or other mortgage, charge, security
interest or assignment and all such deeds and documents and to do all
such acts and things as may be required for the full exercise of the
powers hereby conferred including, but not limited to, executing
and filing any financing statements and charges, and upon the
occurrence of an Event of Default, executing and filing such
documents as are appropriate to effect any sale, lease, liquidation,
disposition, realization, receipt of such Collateral or the enforcement
of BSIL's rights under this Netting and Security Agreement, the
Repurchase Agreement and/or the Swap. CRIIMI hereby covenants with
BSIL to ratify and confirm any deed, document, act and thing and all
transactions that any such attorney or agent may execute or do to
perfect or preserve its security interest in the Collateral and
that CRIIMI will not take any action that would impair BSIL's perfected
security interest in the Collateral.
(iii) Each of Newco and REIT represents and covenants that, except for
such restrictions as may be contained in the Repurchase Agreement, (a)
it has the right to grant a security interest in the Collateral and (b)
the Collateral is free and clear of any liens, claims or encumbrances.
(iv) CRIIMI waives marshalling of assets and any similar doctrine
dealing with the application of Collateral.
(B) On any day on which there exists an obligation for Newco and/or REIT to
transfer or pay (i) Additional Assets pursuant to Section 4 of the
Repurchase Agreement (a "CRIIMI
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Repurchase Agreement Obligation") or (ii) a Delivery Amount or Return
Amount under the Swap (a "CRIIMI Swap Obligation" and together with
CRIIMI Repurchase Agreement Obligation, a "CRIIMI Obligation"), such
CRIIMI Obligation shall, subject to applicable laws, rules and
regulations, be satisfied to the extent that there exists, on such day,
(x) an obligation for BSIL to transfer any Delivery Amount or Return
Amount under the Swap (without regard to the provisions of Paragraph
(C) of this Netting and Security Agreement) or (y) a Margin Excess under
the Repurchase Agreement. For purposes of this Paragraph (B), the value
of any property applied to satisfy a CRIIMI Obligation shall be
determined by BSIL in accordance with the valuation methodology in the
agreement under which such property was originally transferred.
(C) For the avoidance of doubt, (i) to the extent that there is a Margin
Excess, BSIL shall not have any obligation to deliver to CRIIMI any
Purchased Assets except for Additional Assets delivered to BSIL by
CRIIMI directly (as opposed to Additional Assets deemed to have been
transferred by operation of Paragraph (B) herein), under Section 4 of
the Repurchase Agreement, and (ii) to the extent that there is a Return
Amount owed by BSIL under the Swap, BSIL shall not have any obligation
to deliver to CRIIMI any Posted Credit Support except to the extent of
any Eligible Credit Support transferred by CRIIMI directly (as opposed
to Eligible Credit Support deemed to have been transferred by operation
of Paragraph (B) herein), under the Swap.
(D) If a CRIIMI Obligation is satisfied, in whole or in part, pursuant to
Paragraph (B) herein, then the amount of any Return Amount, Delivery
Amount and/or Margin Excess, as applicable, payable by BSIL shall be
reduced and any obligation of BSIL to transfer Additional Assets
and/or Posted Credit Support shall be satisfied, to the extent such
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CRIIMI Obligation is so satisfied and such BSIL obligation shall not
be satisfied to the extent the amount of such BSIL obligation
exceeds the amount of the CRIIMI Obligation so satisfied. For the
avoidance of doubt, to the extent a CRIIMI Obligation is not satisfied,
in whole or in part, pursuant to Paragraph (B), each of Newco and
REIT shall remain obligated, jointly and severally, to satisfy such
CRIIMI Obligation, or any unsatisfied portion thereof, as provided in
the Repurchase Agreement or the Swap, as applicable. Neither Bear
Xxxxxxx' failure to insist at any time upon strict compliance with the
Repurchase Agreement or the Swap or with any of the terms hereof nor any
continued course of such conduct on its part shall constitute or be
considered a waiver by Bear Xxxxxxx of any of its rights or privileges
hereunder.
(E) (i) An Event of Default under either the Repurchase Agreement or the
Swap (but only as to a CRIIMI Event of Default) shall be considered
an "Event of Default" under each of the Repurchase Agreement, the
Swap and this Netting and Security Agreement. In addition to the
remedies contained in the Repurchase Agreement and/or the Swap, upon
the occurrence of an Event of Default under this Netting and Security
Agreement, BSIL may, at its option, (1) foreclose, collect, sell or
otherwise liquidate any Collateral it selects in its reasonable
discretion, in any order and at any time, and apply the proceeds
thereof to satisfy any of CRIIMI's obligations to BSIL (2) setoff, net,
and/or recoup BSIL's obligations to CRIIMI against any of CRIIMI's
obligations to BSIL and (3) retain any Collateral and withhold
payment and performance of any obligation to CRIIMI to pay, secure,
set-off against, net and/or recoup any obligation CRIIMI owes to BSIL.
Notwithstanding the preceding sentence or Paragraph A(ii), this
Netting and Security Agreement shall not supercede any restrictions on
the method of liquidating Purchased
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Assets pursuant to Section 14 of the Repurchase Agreement with respect
to such Purchased Assets.
(ii) If an Event of Default occurs, each of Newco and REIT will be
liable, jointly and severally, to BSIL for (i) the amount of all
reasonable legal or other expenses (including, without limitation, all
costs and expenses of BSIL) in connection with the enforcement of this
Netting and Security Agreement, the Swap or the Repurchase Agreement or
any other agreement evidencing the Transaction, whether in action, suit
or litigation or bankruptcy, insolvency or other similar proceeding
affecting creditors' rights generally, further including, without
limitation, the reasonable fees and expenses of counsel incurred in
connection with or as a result of an Event of Default, (ii) damages in
an amount equal to the cost (including all fees, expenses and
commissions) of entering into replacement transactions and entering
into or terminating hedge transactions in connection with or as a
result of BSIL's efforts to mitigate damages following an Event of
Default, and (iii) any other loss, damage, cost or expense directly
arising or resulting from the occurrence of an Event of Default.
(F) [Reserved]
(G) The provisions of Paragraphs A(i), A(ii) B, C, D and E(i) of this
Netting and Security Agreement are intended, unless otherwise provided
therein, to modify and supercede, to the extent inconsistent with the
Repurchase Agreement and/or the Swap. The other provisions of this
Netting and Security Agreement are intended to be in addition to the
Repurchase Agreement and the Swap.
(H) (i) CRIIMI represents and covenants (and will be deemed to have
repeated each representation and covenant at the time of entering
into a new Acceptable Hedge
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Transaction) that: (a) it will enter into all hedge transactions as
principal and accordingly, will determine the appropriateness for
CRIIMI of such transactions and address any applicable legal, tax or
accounting considerations; (b) it is knowledgeable of and experienced
in the risks of entering into such transactions, is capable of
evaluating the merits and risks of transactions and is able to bear its
economic risks; (c) it is authorized to enter into, or was authorized
at the time it entered into, this Netting and Security Agreement, the
Repurchase Agreement and the Swap and perform its obligations hereunder
and thereunder and that the Netting and Security Agreement is a legal,
valid and binding obligation enforceable against it except as
enforceability may be limited by bankruptcy, moratorium on payment of
debt or other laws affecting the rights of creditors generally;
(d) the person(s) who is executing this Netting and Security Agreement
on CRIIMI's behalf is duly authorized to sign this Netting and Security
Agreement in its name; (e) no advice furnished by BSIL shall form a
primary basis for any decision by CRIIMI, and no amounts paid by CRIIMI
to BSIL shall be attributable to any advice provided by BSIL;
(f) BSIL is not a fiduciary or adviser with respect to CRIIMI; and
(g) at all times, none of CRIIMI's assets constitute, directly or
indirectly, plan assets subject to the fiduciary responsibility sections
of the Employee Retirement Income Security Act ("ERISA") and CRIIMI
covenants to notify BSIL immediately, if at any time, any of CRIIMI's
assets become subject to the fiduciary responsibility sections of
ERISA and, upon BSIL's request, to terminate any or all hedge
transactions if CRIIMI's assets become subject to the fiduciary
responsibility sections of ERISA.
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In addition, CRIIMI represents and covenants (and will be deemed to
have repeated this representation and covenant at the time of entering
into each new Acceptable Hedge Transaction) that, unless required
pursuant to applicable securities law or NYSE regulations, CRIIMI shall
not use the name of Bear Xxxxxxx nor make any disclosure with respect
to Bear Xxxxxxx' relationship with CRIIMI including, without
limitation, in any disclosure document, solicitation, marketing or
advertising material, or in any filing, without Bear Xxxxxxx' prior
written consent.
(ii) Notwithstanding any other provision in this Netting and Security
Agreement to the contrary, BSIL (a) covenants that it will not take any
action in connection with the transactions contemplated by this Netting
and Security Agreement which results in either REIT Subsidiary or any
issuer of Subject Securities (other than the Nomura Securities) ceasing
to be a Qualified REIT Subsidiary and (b) represents that CRIIMI MAE
Inc. is a third-party beneficiary of BSIL's covenant set forth herein.
(I) This Netting and Security Agreement (including the security interest
granted hereby) will terminate upon the termination of either the
Repurchase Agreement or the Swap, provided, however, that the
provisions of this Netting and Security Agreement (including the
security interest granted hereby) shall survive termination until such
time as all of CRIIMI's obligations to BSIL under the Repurchase
Agreement or the Swap (whichever one is terminated) have been satisfied,
provided, further, that BSIL shall not be required to make any
payment or transfer to CRIIMI upon the termination of either the Swap or
the Repurchase Agreement unless and until the Swap or the Repurchase
Agreement (whichever one is not terminated) is adequately collateralized
and margined in accordance with its terms. CRIIMI and BSIL hereby
agree that this Netting and Security
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Agreement shall extend to and be binding upon all of the parties hereto
(whether now existing or hereafter added) and their respective
successors and permitted assigns.
(J) For the protection of CRIIMI and BSIL, and as a way of correcting
misunderstandings, CRIIMI hereby authorizes BSIL, at its discretion and
without prior notice to CRIIMI, to monitor and/or record any or all
telephone conversations between CRIIMI and any of BSIL's employees or
agents which may be used in connection with any dispute between the
parties or in any other way related to this Netting and Security
Agreement, the Repurchase Agreement or the Swap.
(K) [Reserved]
(L) CRIIMI acknowledges that BSIL is under no obligation to seek recovery
under any guarantee or from any third party.
(M) (i) CRIIMI hereby agrees that CRIIMI is solely responsible for
monitoring compliance with its own internal restrictions and procedures
governing investments, trading limits and manner of authorizing
investments, and with the laws and regulations affecting its authority
and ability to trade and invest (collectively, "Policies"). BSIL does
not undertake to assess whether a transaction is appropriate for CRIIMI.
CRIIMI further agrees that it has consulted with its own legal,
regulatory, tax, business, investment, financial and accounting advisors
to the extent CRIIMI has deemed necessary in determining the investment
and trading strategy appropriate for CRIIMI and the appropriateness of
each transaction.
(ii) CRIIMI has not and will not retain an Investment Advisor to act for
it. BSIL is not responsible for advising CRIIMI on the suitability or
determining the suitability of any investments selected by CRIIMI.
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(iii) CRIIMI further agrees that if CRIIMI, through any of its officers,
directors or employees (each an "Agent"), enter into hedge transactions
directly with BSIL, that (a) BSIL is authorized to execute such
transactions and to enter into such transactions as directed by any of
CRIIMI's Agents who have apparent authority to execute such transactions
and to enter into such transactions, (b) BSIL has no duty to make any
inquiry as to such Agent's actual authority, and (c) CRIIMI is obligated
to and will perform all hedge transactions entered into with BSIL with
the authorization of an Agent with such apparent authority, and the
obligations with respect to such transactions shall be its obligations.
(N) This Netting and Security Agreement may be executed, in counterparts,
each of which when fully executed shall be considered an original and
may be executed by facsimile signatures.
(O) This Netting and Security Agreement shall be governed by the
substantive laws of the State of New York, without giving effect to the
conflict of law principles thereof.
(P) This Netting and Security Agreement may not be modified absent a
written instrument signed by authorized representatives of each of the
parties hereto. This Netting and Security Agreement may not be modified
without the consent of CRIIMI MAE Inc.
(Q) Notices hereunder shall be provided as set forth in the Repurchase
Agreement.
[SIGNATURE PAGE FOLLOWS]
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Bear, Xxxxxxx International Limited
/s/Xxxx Xxxxxxxx
-------------------------------------
By: Xxxx Xxxxxxxx
Title: Authorized Signatory
CRIIMI NEWCO, LLC
/s/Xxxxx X. Xxxxxxxxx
-------------------------------------
By: Xxxxx X. Xxxxxxxxx
Title: Executive Vice President
and Chief Operating Officer
CBO REIT II, Inc.
/s/Xxxxx X. Xxxxxxxxx
-------------------------------------
By: Xxxxx X. Xxxxxxxxx
Title: Executive Vice President
and Chief Operating Officer
Consented to by:
CRIIMI MAE INC., as Guarantor
/s/Xxxxx X. Xxxxxxxxx
-------------------------------------
By: Xxxxx X. Xxxxxxxxx
Title: Executive Vice President
and Chief Operating Officer
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