PURCHASE AGREEMENT

 

among

 

REDWOOD TRUST, INC.

 

and

 

OBSIDIAN CDO WAREHOUSE, LLC

 

________________

 

Dated as of May 23, 2007

 

________________

 

PURCHASE AGREEMENT

 

($50,000,000 Aggregate Liquidation Amount of Subordinated Notes)

 

THIS PURCHASE AGREEMENT, dated as of May 23, 2007 (this “ Purchase Agreement ”), is entered into among Redwood Trust, Inc., a Maryland corporation   (the “ Company ”), and Obsidian CDO Warehouse, LLC or its assignee (the “ Purchaser ”).

 

WITNESSETH :

 

WHEREAS, the Company proposes to issue and sell Fifty Million ($50,000,000) in principal amount of the unsecured subordinated notes of the Company (the “ Securities ”), bearing a variable rate, reset quarterly, equal to LIBOR (as defined in the Indenture (as defined below)) plus 2.25% per annum; and

 

WHEREAS, the Securities will be issued pursuant to a Subordinated Indenture, dated as of the Closing Date (the “ Indenture ”), between the Company and Wilmington Trust Company, a Delaware banking corporation, as trustee (in such capacity, the “ Indenture Trustee ”).

 

NOW, THEREFORE, in consideration of the mutual agreements and subject to the terms and conditions herein set forth, the parties hereto agree as follows:

 

1.    Definitions . This Purchase Agreement, the Indenture and the Securities are collectively referred to herein as the “ Operative Documents .” All other capitalized terms used but not defined in this Purchase Agreement shall have the respective meanings ascribed thereto in the Indenture.

 

2.    Purchase and Sale of the Securities .

 

(a)    The Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Company, the Securities for an aggregate amount (the “ Purchase Price ”) equal to Fifty Million Dollars ($50,000,000), net of the placement fee and expenses as set forth in the Flow of Funds, dated as of the date hereof. The Purchaser shall be responsible for the rating agency costs and expenses.

 

(b)    Delivery or transfer of, and payment for, the Securities shall be made at 11:00 A.M. New York time, on May 23, 2007 or such later date (not later than 30 days later) as the parties may designate (such date and time of delivery and payment for the Securities being herein called the “ Closing Date ”). The Securities shall be transferred and delivered to the Purchaser against the payment of the Purchase Price to the Company made by wire transfer in immediately available funds on the Closing Date to a U.S. account designated in writing by the Company at least two business days prior to the Closing Date.

 

(c)    Delivery of the Securities shall be made at such location, and in such names and denominations, as the Purchaser shall designate at least two business days in advance of the Closing Date. The Company agrees to have the Securities available for inspection and checking by the Purchaser in Chicago, Illinois, not later than 2:00 P.M. Chicago time on the business day prior to the Closing Date. The closing for the purchase and sale of the Securities shall occur at the offices of Mayer, Brown, Rowe & Maw LLP, 71 South Wacker Drive, Chicago, Illinois 60606 or such other place as the parties hereto shall agree.

 

3.    Condition s . The obligations of the parties under this Purchase Agreement are subject to the following conditions:

 

(a)    The representations and warranties contained herein shall be accurate as of the date of delivery of the Securities.

 

(b)    Mayer Brown Rowe & Maw LLP, counsel for the Company (the “ Company Counsel ”), shall have delivered an opinion, dated the Closing Date, addressed to the Purchaser and Wilmington Trust Company, in substantially the form set out in Annex A-I hereto and the Company shall have furnished to the Purchaser a certificate signed by the Company’s Chief Executive Officer, President, an Executive Vice President, Chief Financial Officer, Treasurer or Assistant Treasurer, dated the Closing Date, addressed to the Purchaser, in substantially the form set out in Annex A-II hereto. In rendering its opinion, the Company Counsel may rely as to factual matters upon certificates or other documents furnished by officers, directors and trustees of the Company and by government officials (provided, however, that copies of any such certificates or documents are delivered to the Purchaser) and by and upon such other documents as such counsel may, in its reasonable opinion, deem appropriate as a basis for the Company Counsel’s opinion. The Company Counsel may specify the jurisdictions in which it is admitted to practice and that it is not admitted to practice in any other jurisdiction and is not an expert in the law of any other jurisdiction. Such Company Counsel Opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).

 

(c)    The Purchaser shall have been furnished the opinion of Chapman and Cutler LLP, dated the Closing Date, addressed to the Purchaser and Wilmington Trust Company, in substantially the form set out in Annex B hereto.

 

(d)    The Purchaser shall have received the opinion of Richards, Layton & Finger, P.A., counsel for the Indenture Trustee, dated the Closing Date, addressed to the Purchaser, in substantially the form set out in Annex C hereto.

 

(e)    The Company shall have furnished to the Purchaser a certificate of the Company, signed by the Chief Executive Officer, President or an Executive Vice President, and Chief Financial Officer, Treasurer or Assistant Treasurer of the Company, dated the Closing Date, as to (i) and (ii) below:

 

(i)    the representations and warranties in this Purchase Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; and

 

(ii)    since the date of the Interim Financial Statements (as defined below), there has been no material adverse change in the condition (financial or other), earnings, business or assets of the Company and its subsidiaries, whether or not arising from transactions occurring in the ordinary course of business (a “ Material Adverse Change ”).

 

(f)    Subsequent to the execution of this Purchase Agreement, there shall not have been any change, or any development involving a prospective change, in or affecting the condition (financial or other), earnings, business or assets of the Company and its subsidiaries, whether or not occurring in the ordinary course of business, the effect of which is, in the Purchaser’s judgment, so material and adverse as to make it impractical or inadvisable to proceed with the purchase of the Securities.

 

(g)    Prior to the Closing Date, the Company shall have furnished to the Purchaser and its counsel such further information, certificates and documents as the Purchaser or its counsel may reasonably request.

 

If any of the conditions specified in this Section 3 shall not have been fulfilled when and as provided in this Purchase Agreement, or if any of the opinions, certificates and documents mentioned above or elsewhere in this Purchase Agreement shall not be reasonably satisfactory in form and substance to the Purchaser or its counsel, this Purchase Agreement and all the Purchaser’s obligations hereunder may be canceled at, or at any time prior to, the Closing Date by the Purchaser. Notice of such cancellation shall be given to the Company in writing or by telephone or facsimile confirmed in writing.

 

Each certificate signed by any officer of the Company and delivered to the Purchaser or the Purchaser’s counsel in connection with the Operative Documents and the transactions contemplated hereby and thereby shall be deemed to be a representation and warranty of the Company and not by such officer in any individual capacity.

 

4.    Representations and Warranties of the Company . The Company represents and warrants to, and agree with the Purchaser, as follows:

 

(a)    Neither the Company nor any of its “Affiliates” (as defined in Rule 501(b) of Regulation D (“ Regulation D ”) under the Securities Act (as defined below)), nor any person acting on its behalf, has, directly or indirectly, made offers or sales of any security, or solicited offers to buy any security, under circumstances that would require the registration of any of the Securities under the Securities Act of 1933, as amended (the “ Securities Act ”).

 

(b)    Neither the Company nor any of its Affiliates, nor any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of any of the Securities.

 

(c)    The Securities (i) are not and have not been listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or quoted on a U.S. automated inter-dealer quotation system and (ii) are not of an open-end investment company, unit investment trust or face-amount certificate company that are, or are required to be, registered under Section 8 of the Investment Company Act of 1940, as amended (the “ Investment Company Act ”), and the Securities otherwise satisfy the eligibility requirements of Rule 144A(d)(3) promulgated pursuant to the Securities Act (“ Rule 144A(d)(3) ”).

 

(d)    Neither the Company nor any of its Affiliates, nor any person acting on its behalf, has engaged, or will engage, in any “directed selling efforts” within the meaning of Regulation S under the Securities Act with respect to the Securities.

 

(e)    The Company is not and, immediately following consummation of the transactions contemplated hereby and the application of the net proceeds therefrom, will not be, an “investment company” within the meaning of Section 3(a) of the Investment Company Act.

 

(f)    The Company has not paid or agreed to pay to any person any compensation for soliciting another to purchase any of the Securities, except for the placement fee of three percent (3%) the Company has agreed to pay to J.P. Morgan Securities, Inc. pursuant to the letter agreement between the Company and Coredo Capital Management, LLC, dated April 16, 2007.

 

(g)    The Indenture has been duly authorized by the Company and, on the Closing Date, will have been duly executed and delivered by the Company, and, assuming due authorization, execution and delivery by the Indenture Trustee, will be a legal, valid and binding obligation of the Company enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity.

 

(h)    The Securities have been duly authorized by the Company and, on the Closing Date, will have been duly executed and delivered to the Indenture Trustee for authentication in accordance with the Indenture and, when authenticated in the manner provided for in the Indenture and delivered to the Purchaser against payment therefor in accordance herewith, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity.

 

(i)    This Purchase Agreement has been duly authorized, executed and delivered by the Company.

 

(j)    Neither the issue and sale of the Securities, nor the execution and delivery of and compliance with the Operative Documents by the Company, nor the consummation of the transactions contemplated herein or therein, (i) will conflict with or constitute a violation or breach of the charter or bylaws or similar organizational documents of the Company, (ii) will conflict with or constitute a violation or breach of the charter or bylaws or similar organizational documents of any subsidiary of the Company or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, governmental authority, agency or instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or their respective properties or assets (collectively, the “ Governmental Entities ”), (iii) will conflict with or constitute a violation or breach of, or a default or Repayment Event (as defined below) under, or result in the creation or imposition of any pledge, security interest, claim, lien or other encumbrance of any kind (each, a “ Lien ”) upon any property or assets of the Company or any of the Company’s subsidiaries pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which (A) the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or (B) any of the property or assets of any of them is subject, or any judgment, order or decree of any court, Governmental Entity or arbitrator, except, in the case of this clauses (ii) or (iii), for such conflicts, breaches, violations, defaults, Repayment Events (as defined below) or Liens which (X) would not, singly or in the aggregate, adversely affect the consummation of the transactions contemplated by the Operative Documents and (Y) would not, singly or in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), earnings, business, liabilities or assets (taken as a whole) of the Company and its subsidiaries taken as a whole, whether or not occurring in the ordinary course of business (a “ Material Adverse Effect ”) or (iv) require the consent, approval, authorization or order of any court or Governmental Entity (collectively, the “ Consents ”), except any such Consent as has already been received or obtained. As used herein, a “ Repayment Event ” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries prior to its scheduled maturity.

 

(k)    The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland, with all requisite corporate   power and authority to own, lease and operate its properties and conduct the business it transacts and proposes to transact, and is duly qualified to transact business and is in good standing in each jurisdiction where the nature of its activities requires such qualification, except where the failure of the Company to be so qualified would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)    The Company has no subsidiaries that are material to its business, financial condition or earnings other than those subsidiaries listed in Schedule 1 attached hereto (which Schedule 1 includes each of the Company’s “significant subsidiaries” as defined in Securities and Exchange Commission Regulation S-X) (collectively, the “ Significant Subsidiaries ”). The Significant Subsidiary is a corporation duly incorporated or organized or formed, as the case may be, validly existing and in good standing under the laws of the jurisdiction in which it is chartered or organized or formed, with all requisite corporate, partnership or limited liability company, as the case may be, power and authority to own, lease and operate its properties and conduct the business it transacts and proposes to transact. The Significant Subsidiary is duly qualified to transact business as a foreign corporation and is in good standing in each jurisdiction where the nature of its activities requires such qualification, except where the failure to be so qualified would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Significant Subsidiary (other than a taxable REIT subsidiary, if any) is not currently prohibited, directly or indirectly, under any agreement or other instrument, other than as required by applicable law, to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such Significant Subsidiary’s capital stock or other Equity Interests, from repaying to the Company any loans or advances to such Significant Subsidiary from the Company or from transferring any of such Significant Subsidiary’s properties or assets to the Company or any other subsidiary of the Company. As used herein, the term “ Equity Interests ” means the shares or stock interests (both common stock and preferred stock) in a corporation.

 

(m)    Each of the Company and each of the Company’s subsidiaries holds all necessary approvals, authorizations, orders, licenses, consents, registrations, qualifications, certificates and permits (collectively, the “ Governmental Licenses ”) of and from Governmental Entities necessary to conduct its business as now being conducted, and neither the Company nor any of the Company’s subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Government License, except where the failure to be so licensed or approved or the receipt of an unfavorable decision, ruling or finding, would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity or the failure of such Governmental Licenses to be in full force and effect, would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; and the Company and its subsidiaries are in compliance with all applicable laws, rules, regulations, judgments, orders, decrees and consents, except where the failure to be in compliance would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(n)    All of the issued and outstanding Equity Interests of the Company and its Significant Subsidiary are validly issued, fully paid and non-assessable; all of the issued and outstanding Equity Interests of the Significant Subsidiary are owned by the Company, directly or through subsidiaries, free and clear of any Lien, claim or equitable right; and none of the issued and outstanding Equity Interests of the Company or the Significant Subsidiary were issued in violation of any preemptive or similar rights arising by operation of law, under the charter or by-laws or similar organizational documents of such entity or under any agreement to which the Company or its Significant Subsidiary is a party.

 

(o)    Neither the Company nor any of its subsidiaries is (i) in violation of its respective charter or by-laws or similar organizational documents or (ii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any such subsidiary is a party or by which it or any of them may be bound or to which any of the property or assets of any of them is subject, except, in the case of clause (ii), where such violation or default would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p)    There is no action, suit or proceeding before or by any Governmental Entity, arbitrator or court, domestic or foreign, now pending or, to the knowledge of the Company after due inquiry, threatened against or affecting the Company or any of the Company’s subsidiaries, except for such actions, suits or proceedings that, if adversely determined, would not, singly or in the aggregate, adversely affect the consummation of the transactions contemplated by the Operative Documents or reasonably be expected to have a Material Adverse Effect; and the aggregate of all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective properties or assets is subject, including ordinary routine litigation incidental to the business, are not reasonably expected to result in a Material Adverse Effect.

 

(q)    The accountants of the Company who certified the Financial Statements (as defined below) are independent public accountants of the Company and its subsidiaries within the meaning of the Securities Act, and the rules and regulations of the Securities and Exchange Commission (the “ Commission ”) thereunder.

 

(r)    The audited consolidated financial statements (including the notes thereto) and schedules of the Company and its consolidated subsidiaries for the fiscal year ended December 31, 2006 (the “ Financial Statements ”) and the interim unaudited consolidated financial statements of the Company and its consolidated subsidiaries for the quarter ended March 31, 2007 (the “ Interim Financial Statements ”) provided to the Purchaser are the most recent available audited and unaudited consolidated financial statements of the Company and its consolidated subsidiaries, respectively, and fairly present in all material respects, in accordance with U.S. generally accepted accounting principles (“ GAAP ”), the financial position of the Company and its consolidated subsidiaries, and the results of operations and changes in financial condition as of the dates and for the periods therein specified, subject, in the case of Interim Financial Statements, to year-end adjustments (which are expected to consist solely of normal recurring adjustments). Such consolidated financial statements and schedules have been prepared in accordance with GAAP consistently applied throughout the periods involved (except as otherwise noted therein).

 

(s)    None of the Company nor any of the Company’s subsidiaries has any material liability required to be reflected in the Financial Statements and Interim Financial Statements in accordance with GAAP, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for taxes (and there is no past or present fact, situation, circumstance, condition or other basis for any present or future action, suit, proceeding, hearing, charge, complaint, claim or demand against the Company or its subsidiaries that could give rise to any such liability), except for (i) liabilities set forth in the Financial Statements or the Interim Financial Statements and (ii) normal fluctuations in the amount of the liabilities referred to in clause (i) above occurring in the ordinary course of business of the Company and/or its subsidiaries since the date of the most recent balance sheet included in such Financial Statements.

 

(t)    Since the respective dates of the Financial Statements and the Interim Financial Statements, there has not been (A) any Material Adverse Change or (B) any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock other than regular quarterly or yearly special dividends on the Company’s common stock.

 

(u)    The documents of the Company filed with the Commission in accordance with the Exchange Act, from and including the commencement of the fiscal year covered by the Company’s most recent Annual Report on Form 10-K, at the time they were or hereafter are filed by the Company with the Commission (collectively, the “ 1934 Act Reports ”), complied and will comply in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder (the “ 1934 Act Regulations ”), and, at the date of this Purchase Agreement and on the Closing Date, do not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and other than such instruments, agreements, contracts and other documents as are filed as exhibits to the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, there are no instruments, agreements, contracts or documents of a character described in Item 601 of Regulation S-K promulgated by the Commission to which the Company or any of its subsidiaries is a party. The Company is in compliance with all currently applicable requirements of the Exchange Act that were added by the Sarbanes-Oxley Act of 2002, except as would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(v)    No labor dispute with the employees of the Company or the Significant Subsidiary exists or, to the knowledge of the executive officers of the Company, is imminent, except those which would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(w)    No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Governmental Entity, other than those that have been made or obtained, is necessary or required for the performance by the Company of their respective obligations under the Operative Documents, as applicable, or the consummation by the Company of the transactions contemplated by the Operative Documents.

 

(x)    Commencing with its taxable year ended December 31, 1994 the Company has been, and upon the completion of the transactions contemplated hereby, the Company will continue to be, organized and operated in conformity with the requirements for qualification and taxation as a real estate investment trust (a “ REIT ”) under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the Company’s proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code, and no actions have been taken (or not taken which are required to be taken) which would cause such qualification to be lost. The Company expects to continue to be organized and to operate in a manner so as to qualify as a REIT in the taxable year ending December 31, 2007 and succeeding taxable years for so long as the Company determines that it is in its best interest to remain qualified as a REIT.

 

(y)    Each of the Company and the Significant Subsidiary has timely and duly filed all Tax Returns (as defined below) required to be filed by them, and all such Tax Returns are true, correct and complete in all material respects. The Company and the Significant Subsidiary have timely and duly paid in full all material Taxes (as defined below) required to be paid by them (whether or not such amounts are shown as due on any Tax Return). There are no federal, state, or other Tax audits or deficiency assessments proposed or pending with respect to the Company or the Significant Subsidiary, and no such audits or assessments are threatened. As used herein, the terms “ Tax ” or “ Taxes ” mean (i) all federal, state, local, and foreign taxes, and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto, imposed by any Governmental Entity, and (ii) all liabilities in respect of such amounts arising as a result of being a member of any affiliated, consolidated, combined, unitary or similar group, as a successor to another person or by contract. As used herein, the term “ Tax Returns ” means all federal, state, local, and foreign Tax returns, declarations, statements, reports, schedules, forms, and information returns and any amendments thereto filed or required to be filed with any Governmental Entity.

 

(z)    Interest payable by the Company on the Securities is deductible by the Company, in whole or in part, for U.S. federal income tax purposes. To the knowledge of the Company, there are no audits, investigations or similar proceedings before the U.S. Internal Revenue Service or comparable federal, state, local or foreign government bodies which involve or affect the Company or any subsidiary, which, if the subject of an action unfavorable to the Company or any subsidiary, would reasonably be expected to result in a Material Adverse Effect.

 

(aa)    The books, records and accounts of the Company and its subsidiaries accurately and fairly reflect, in reasonable detail, the transactions in, and dispositions of, the assets of, and the results of operations of, the Company and its subsidiaries. The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(bb)    The Company and the Significant Subsidiary are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts in all material respects as are customary in the businesses in which they are engaged or propose to engage after giving effect to the transactions contemplated hereby including but not limited to, real or personal property owned or leased against theft, damage, destruction, act of vandalism and all other risks customarily insured against. All policies of insurance and fidelity or surety bonds insuring the Company or the Significant Subsidiary or the Company’s or Significant Subsidiary’s respective businesses, assets, employees, officers and directors are in full force and effect. The Company and each of the subsidiaries are in compliance with the terms of such policies and instruments in all material respects. Neither the Company nor the Significant Subsidiary has reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to have a Material Adverse Effect. Within the past twelve months, neither the Company nor the Significant Subsidiary has been denied any insurance coverage that it has sought or for which it has applied.

 

(cc)    None of the Company, any of its subsidiaries or any person acting on behalf of the Company or any of its subsidiaries including, without limitation, any director, officer, agent or employee of the Company or any of its subsidiaries has, directly or indirectly, while acting on behalf of the Company or any of its subsidiaries (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any other unlawful payment.

 

5.    Representations and Warranties of the Purchaser . The Purchaser represents and warrants to, and agrees with, the Company as follows:

 

(a)    The Purchaser is aware that the Securities have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to “U.S. persons” (as defined in Regulation S under the Securities Act) except in accordance with Rule 903 of Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act.

 

(b)    The Purchaser is an “accredited investor,” as such term is defined in Rule 501(a) of Regulation D under the Securities Act.

 

(c)    Neither the Purchaser, nor any of the Purchaser’s Affiliates, nor any person acting on the Purchaser’s or any Purchaser’s Affiliate’s behalf has engaged, or will engage, in any form of “general solicitation or general advertising” (within the meaning of Regulation D under the Securities Act) in connection with any offer or sale of the Securities.

 

(d)    The Purchaser understands and acknowledges that (i) no public market exists for any of the Securities and that it is unlikely that a public market will ever exist for the Securities, (ii) the Purchaser is purchasing the Securities for its own account, for investment and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or other applicable securities laws, subject to any requirement of law that the disposition of its property be at all times within its control and subject to its ability to resell such Securities pursuant to an effective registration statement under the Securities Act or pursuant to an exemption therefrom or in a transaction not subject thereto, and the Purchaser agrees to the legends and transfer restrictions applicable to the Securities contained in the Indenture, and (iii) the Purchaser has had the opportunity to ask questions of, and receive answers and request additional information from, the Company and is aware that it may be required to bear the economic risk of an investment in the Securities.

 

(e)    The Purchaser is duly formed, validly existing and in good standing under the laws of the jurisdiction in which it is organized with all requisite (i) power and authority to execute, deliver and perform the Operative Documents to which it is a party, to make the representations and warranties specified herein and therein and to consummate the transactions contemplated herein and (ii) right and power to purchase the Securities.

 

(f)    This Purchase Agreement has been duly authorized, executed and delivered by the Purchaser and no filing with, or authorization, approval, consent, license, order registration, qualification or decree of, any governmental body, agency or court having jurisdiction over the Purchaser, other than those that have been made or obtained, is necessary or required for the performance by the Purchaser of its obligations under this Purchase Agreement or to consummate the transactions contemplated herein.

 

(g)    The Purchaser is a “Qualified Purchaser” as such term is defined in Section 2(a)(51) of the Investment Company Act.

 

6.    Covenants and Agreements of the Company . The Company agrees with the Purchaser as follows:

 

(a)    During the period from the date of this Agreement to the Closing Date, the Company shall use its best efforts and take all action necessary or appropriate to cause its representations and warranties contained in Section 4 hereof to be true as of the Closing Date, after giving effect to the transactions contemplated by this Purchase Agreement, as if made on and as of the Closing Date.

 

(b)    The Company will not, nor will it permit any of its Affiliates to, nor will it permit any person acting on its or their behalf (other than the Purchaser) to, resell any Securities that have been acquired by any of them.

 

(c)    The Company will not, nor will it permit any of its Affiliates or any person acting on its or their behalf to, engage in any “directed selling efforts” within the meaning of Regulation S under the Securities Act with respect to the Securities.

 

(d)    The Company will not, nor will it permit any of its Affiliates to, nor will it permit any person acting on its or their behalf to, directly or indirectly, make offers or sales of any security, or solicit offers to buy any security, under circumstances that would require the registration of any of the Securities under the Securities Act.

 

(e)    The Company will not, nor will it permit any of its Affiliates to, nor will it permit any person acting on its or their behalf to, engage in any form of “general solicitation or general advertising” (within the meaning of Regulation D) in connection with any offer or sale of the any of the Securities.

 

(f)    So long as any of the Securities are outstanding, (i) the Securities shall not be listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system and (ii) the Company shall not be an open-end investment company, unit investment trust or face-amount certificate company that is, or is required to be, registered under Section 8 of the Investment Company Act, and, the Securities shall otherwise satisfy the eligibility requirements of Rule 144A(d)(3).

 

(g)    The Company shall furnish to (i) the holders, and subsequent holders, of the Securities, (ii) Coredo Capital Management, LLC (at 712 5th Avenue, 10th Floor, New York, New York 10019, or such other address as designated by Coredo Capital Management, LLC) and (iii) any beneficial owner of the Securities reasonably identified to the Company (which identification may be made by either such beneficial owner or by Coredo Capital Management, LLC), a duly completed and executed certificate in the form attached hereto as Annex D , including the financial statements referenced in such Annex, which certificate and financial statements shall be so furnished by the Company not later than forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Company and not later than ninety (90) days after the end of each fiscal year of the Company.

 

(h)    The Company will, during any period in which it is not subject to and in compliance with Section 13 or 15(d) of the Exchange Act, or it is not exempt from such reporting requirements pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act, provide to each holder of the Securities and to each prospective purchaser (as designated by such holder) of the Securities, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act. If the Company is required to register under the Exchange Act, such reports filed in compliance with Rule 12g3-2(b) shall be sufficient information as required above. This covenant is intended to be for the benefit of the Purchaser, the holders of the Securities, and the prospective purchasers designated by the Purchaser and such holders, from time to time, of the Securities.

 

(i)    The Company will not, until one hundred eighty (180) days following the Closing Date, without the Purchaser’s prior written consent, offer, sell, contract to sell, grant any option to purchase or otherwise dispose of, directly or indirectly, (i) any Securities or other securities substantially similar to the Securities other than as contemplated by this Purchase Agreement or (ii) any other securities convertible into, or exercisable or exchangeable for, any Securities or other securities substantially similar to the Securities, unless the Company, upon the request of the Purchaser, provides the Purchaser with an opinion of counsel (such counsel to have experience and sophistication in the matters addressed in such opinion) addressed to the Purchaser stating that any such offer, sale, contract, option or other disposition will not result in the Securities being required to be registered under the Securities Act. For the avoidance of doubt, the parties hereto agree that any securities issued by the Company with an interest rate, interest payment dates and maturity date that are different from the Securities would not be deemed to be substantially similar to the Securities.

 

(j)    The Company will use its best efforts to meet the requirements to qualify as a REIT under sections 856 through 860 of the Code, effective for the taxable year ending December 31, 2007 (and each fiscal quarter of such year) and succeeding taxable years for so long as the Company determines that it is in its best interest to remain qualified as a REIT.

 

(k)    The Company will not identify any of the Indemnified Parties (as defined below) in a press release or any other public statement without the prior written consent of such Indemnified Party. For purposes of clarification, none of the Company's financial statements, press releases or other statements may disclose the identity of the Indemnified Parties, but may identify the Indenture Trustee; provided, however, that nothing to the contrary in this Agreement, in no event shall the Company be precluded from filing any 1934 Act Reports or any other filings with the Commission under the Securities Act, which the Company believes are reasonably and legally necessary to be filed with the Commission.

 

7.    Payment of Expenses . The Company agrees to pay all costs and expenses incident to the performance of the obligations of the Company under this Purchase Agreement, whether or not the transactions contemplated herein are consummated or this Purchase Agreement is terminated, including all costs and expenses incident to (i) the authorization, issuance, sale and delivery of the Securities and any taxes payable in connection therewith; (ii) the fees and expenses of qualifying the Securities under the securities laws of the several jurisdictions as provided in Section 6(b) ; (iii) the fees and expenses of the counsel, the accountants and any other experts or advisors retained by the Company; (iv) the fees and all reasonable expenses of the Indenture Trustee and any other trustee or paying agent appointed under the Operative Documents, including the fees and disbursements of counsel for such trustees, which fees of the Indenture Trustee shall not exceed a one time fee of $15,000; (v) $35,000 for the fees and expenses of DLA Piper US LLP, special counsel retained by Coredo Capital Management, LLC; (vi) a due diligence fee equal to $14,5000; and (vii) a PORTAL eligibility fee of $2,000.  

 

If the sale of the Securities provided for in this Purchase Agreement is not consummated because any condition set forth in Section 3 hereof to be satisfied by either the Company is not satisfied, because this Purchase Agreement is terminated pursuant to Section 9 or because of any failure, refusal or inability on the part of the Company to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder other than by reason of a default by the Purchaser, the Company will reimburse the Purchaser upon demand for all reasonable out-of-pocket expenses (including the fees and expenses of each of the Purchaser’s counsel specified in the immediately preceding paragraph) that shall have been incurred by the Purchaser in connection with the proposed purchase and sale of the Securities. The Company shall not in any event be liable to the Purchaser for the loss of anticipated profits from the transactions contemplated by this Purchase Agreement .

 

8.    Indemnification . (a)   The Company agrees to indemnify and hold harmless the Purchaser, the Purchaser’s affiliates, Coredo Capital Management, LLC, and their respective affiliates (collectively, the “ Indemnified Parties ”) each person, if any, who controls any of the Indemnified Parties within the meaning of the Securities Act or the Exchange Act, and the Indemnified Parties’ respective directors, officers, employees and agents against any losses, claims, damages or liabilities, joint or several, to which the Indemnified Parties may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are connected with the execution and delivery by the Company, and the consummation thereby of the transactions contemplated by, this Purchase Agreement or any other Operative Document. The Company agrees to reimburse the Indemnified Parties for any legal or other expenses reasonably incurred by the Indemnified Parties in connection with investigating or defending any such loss, claim, damage or liability or action arising out of or being connected with the execution and delivery by the Company, and the consummation by the Company of the transactions contemplated by, this Purchase Agreement or the other Operative Documents. This indemnity agreement will be in addition to any liability that any of the Company may otherwise have.

 

(b)    Promptly after receipt by an Indemnified Party under this Section 8 of notice of the commencement of any action, such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8 , promptly notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve the indemnifying party from liability under paragraph (a) above unless and to the extent that such failure results in the forfeiture by the indemnifying party of material rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any Indemnified Party. The Purchaser shall be entitled to appoint counsel to represent the Indemnified Party in any action for which indemnification is sought. An indemnifying party may participate at its own expense in the defense of any such action; provided , that counsel to the indemnifying party shall not (except with the consent of the Indemnified Party) also be counsel to the Indemnified Party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all Indemnified Parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, unless an Indemnified Party believes that its interests are not aligned with the interests of another Indemnified Party or that a conflict of interest might result. An indemnifying party will not, without the prior written consent of the Indemnified Parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not the Indemnified Parties are actual or potential parties to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Party from all liability arising out of such claim, action, suit or proceeding.

 

9.    Termination; Representations and Indemnities to Survive . This Purchase Agreement shall be subject to termination in the absolute discretion of the Purchaser, by notice given to the Company prior to delivery of and payment for the Securities, if prior to such time (i) a downgrading shall have occurred in the rating accorded the Company’s debt securities by any “nationally recognized statistical rating organization,” as that term is used by the Commission in Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, or such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Company’s debt securities, (ii) the Company shall be unable to sell and deliver to the Purchaser at least $50,000,000 in stated liquidation value of Securities, (iii) a suspension or material limitation in trading in securities generally shall have occurred on the New York Stock Exchange, (iv) a suspension or material limitation in trading in any of the Company’s securities shall have occurred on the exchange or quotation system upon which the Company’ securities are traded, if any, (v) a general moratorium on commercial business activities shall have been declared either by federal, California or Maryland authorities or (vi) there shall have occurred any outbreak or escalation of hostilities, or declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the Purchaser’s judgment, impracticable or inadvisable to proceed with the offering or delivery of the Securities. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Purchaser set forth in or made pursuant to this Purchase Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Purchaser or the Company or any of the their respective officers, directors or controlling persons, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 shall survive the termination or cancellation of this Purchase Agreement.

 

10.    Amendments . This Purchase Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement by each of the parties hereto.

 

11.    Notices . All communications hereunder will be in writing and effective only on receipt, and, if sent to the Purchaser, will be mailed, delivered by hand or courier or sent by facsimile and confirmed to the Purchaser, c/o Coredo Capital Management, LLC, 712 5th Avenue, 10th Floor, New York, New York 10019, Attention: Dar Patel, Facsimile: (215) 640-6376; or other address as the Purchaser shall designate for such purpose in a notice to the Company; and if sent to the Company, will be mailed, delivered by hand or courier or sent by facsimile and confirmed to it at Redwood Trust, Inc., One Belvedere Place, Suite 300, Mill Valley, California 94941,   Attention: Martin S. Hughes, Facsimile: (415) 381-1773; with a copy to Mayer, Brown, Rowe & Maw, LLP, 71 South Wacker Drive, Chicago, Illinois 60606, Attention: Samantha B. Whitehouse, Facsimile: (312) 701-7711.

 

12.    Successors and Assigns . This Purchase Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing expressed or mentioned in this Purchase Agreement is intended or shall be construed to give any person other than the parties hereto and the affiliates, directors, officers, employees, agents and controlling persons referred to in Section 8 hereof and their successors, assigns, heirs and legal representatives, any right or obligation hereunder. None of the rights or obligations of the Company under this Purchase Agreement may be assigned, whether by operation of law or otherwise, without the Purchaser’s prior written consent. The rights and obligations of the Purchaser under this Purchase Agreement may be assigned by the Purchaser without the Company’s consent; provided that the assignee assumes the obligations of the Purchaser under this Purchase Agreement.

 

13.    Applicable Law . THIS PURCHASE AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).

 

14.    Submission To Jurisdiction . ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH RESPECT TO OR ARISING OUT OF THIS PURCHASE AGREEMENT MAY BE BROUGHT IN OR REMOVED TO THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH CASE SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF THIS PURCHASE AGREEMENT, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS (AND COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS PURCHASE AGREEMENT.

 

15.    Counterparts and Facsimile . This Purchase Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. This Purchase Agreement may be executed by any one or more of the parties hereto by facsimile.

 

[Signature Page Follows]

 

 

IN WITNESS WHEREOF, this Purchase Agreement has been entered into as of the date first written above.

 

Redwood Trust, Inc.

 

By:          /s/ Martin S. Hughes                            

            Name:  Martin S. Hughes

Title:    Vice President, Chief Financial

                             Officer and Secretary

Obsidian CDO Warehouse, LLC

 

By: Coredo Capital MAnagement, LLC

 

By:          /s/ Jeff Blomstrom                                 

Name: Jeff Blomstrom

Title: Managing Director

SCHEDULE 1

 

List of Significant Subsidiaries

 

RWT Holdings, Inc.

 

ANNEX A-I

 

Pursuant to Section 3(c) of the Purchase Agreement, Mayer Brown Rowe & Maw, LLP, counsel for the Company, shall deliver an opinion to the effect that:

 

(i)    each of the Company and the Significant Subsidiary is validly existing as an entity in good standing under the laws of the jurisdiction in which it is incorporated; each of the Company and the Significant Subsidiary has full power and authority to own or lease its properties and to conduct its business as such business is currently conducted in all material respects; the Company has corporate power and authority to (i) execute and deliver, and to perform its obligations under, the Operative Documents to which it is a party and (iii) issue and perform its obligations under the Notes;

 

(ii)    neither the issue and sale of the Securities, nor the execution and delivery of and compliance with the Operative Documents by the Company nor the consummation of the transactions contemplated thereby will constitute a breach or violation of the charter or by-laws or similar organizational documents of the Company;

 

(iii)    the Indenture has been duly authorized, executed and delivered by the Company and, assuming it has been duly authorized, executed and delivered by the Indenture Trustee, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity;  

 

(iv)    the Securities have been duly authorized and executed by the Company and delivered to the Indenture Trustee for authentication in accordance with the Indenture and, when authenticated in accordance with the provisions of the Indenture and delivered to the Purchaser against payment therefor, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and to general principles of equity;

 

(v)    the Company is not, and, following the issuance of the Securities and the consummation of the transactions contemplated by the Operative Documents and the application of the proceeds therefrom, the Company will not be, an “investment company” within the meaning of Section 3(a) of the Investment Company Act;

 

(vi)    assuming the truth and accuracy of the representations and warranties of the Purchaser in the Purchase Agreement, it is not necessary in connection with the offer, sale and delivery of the Securities to register the same under the Securities Act of 1933, as amended, under the circumstances contemplated in the Purchase Agreement, or to require qualification of the Indenture under the Trust Indenture Act of 1939, as amended;

 

(vii)    the Purchase Agreement has been duly authorized, executed and delivered by each of the Company; and

 

(viii)    except for filings, registrations or qualifications that may be required by applicable securities laws, no authorization, approval, consent or order of, or filing, registration or qualification with, any person (including, without limitation, any court, governmental body or authority) is required under the laws of the State of Maryland in connection with the transactions contemplated by the Operative Documents;

 

ANNEX A-II

Pursuant to Section 3(b) of the Purchase Agreement, the Company shall provide an Officers’ Certificate, to the effect that:

 

(i)    all of the issued and outstanding equity interests of the Significant Subsidiary have been duly authorized and validly issued, and are fully paid and nonassessable and are owned of record and beneficially, directly or indirectly, by the Company;

 

(ii)    no consent, approval, authorization or order of any court or Governmental Entity is required for the issue and sale of the Securities, the execution and delivery of and compliance with the Operative Documents by the Company or the consummation of the transactions contemplated in the Operative Documents, except such approvals (specified in such certificate) as have been obtained;

 

(iii)    to the knowledge of such officer, there is no action, suit or proceeding before or by any government, governmental instrumentality, arbitrator or court, domestic or foreign, now pending or threatened against or affecting the Company or the Significant Subsidiary that could adversely affect the consummation of the transactions contemplated by the Operative Documents or could reasonably be expected to have a Material Adverse Effect.

 

(iv)    neither the Company, nor the Significant Subsidiary is in breach or violation of, or default under, with or without notice or lapse of time or both, it articles of incorporation or charter, by-laws or other governing documents; the execution, delivery and performance of the Operative Documents and the consummation of the transactions contemplated by the Purchase Agreement and the Operative Documents do not and will not (A) result in the creation or imposition of any material lien, claim, charge, encumbrance or restriction upon any property or assets of the Company or the Significant Subsidiary, or (B) conflict with, constitute a material breach or violation of, or constitute a material default under, with or without notice or lapse of time or both, any of the terms, provisions or conditions of (x) the articles of incorporation or charter, by-laws or other governing documents of the Company or its Significant Subsidiary, or (y) to the best of our knowledge, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease, franchise, license or any other agreement or instrument (collectively, “Agreements”) to which the Company or its Significant Subsidiary is a party or by which any of them or any of their respective properties may be bound, which is included as an exhibit to the Company’s 2006 10-K as a material Agreement or (z) any material order, decree, judgment, franchise, license, permit, rule or regulation of any court, arbitrator, government, or governmental agency or instrumentality, domestic or foreign, known to us having jurisdiction over the Company or its Significant Subsidiary or any of their respective properties which, in the case of each of (A) or (B) above, would reasonably be expected to have a Material Adverse Effect.

 

(v)   neither the Company nor any of its “Affiliates” (as defined in Rule 501(b) of Regulation D under the Securities Act (“Regulation D”)) has directly or indirectly, made offers or sales of any security, or solicited offers to buy any security, under circumstances that would require the registration of any of the Securities being issued pursuant to this transaction under the Securities Act, engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of any of the Securities, or engaged, nor will engage, in any “directed selling efforts” within the meaning of Regulation S under the Securities Act with respect to the Securities.

 

Pursuant to Section 3(c) of the Purchase Agreement, Chapman and Cutler LLP shall deliver an opinion to the effect that

 

(v)    for U.S. federal income tax purposes, the Securities should constitute indebtedness of the Company; and

 

(vi)    beginning with the Company’s initial taxable year ended December 31, 1994, the Company has been organized in conformity with the requirements for qualification as a REIT under the Code, and the Company’s actual method of operation through March 31, 2007 (the date of the most recent financial statements and management reports reviewed by us) has enabled, and its proposed method of operation (as represented in the attached Officer’s Certificate) should enable, the Company to satisfy the requirements for qualification and taxation as a REIT.

 

In rendering such opinions, such counsel may (A) state that its opinion is limited to the federal laws of the United States and (B) rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of the Company and public officials.

 

Redwood Trust, Inc. Officer’s Certificate

 

(Regarding Tax Matters)

The undersigned officers of Redwood Trust, Inc. , a Maryland corporation ( “Redwood Trust” ), each hereby certify the following information on behalf of Redwood Trust and its affiliates (collectively, the “Company” ), after due inquiry and with the knowledge that Chapman and Cutler LLP has relied on these certifications for the purpose of rendering its opinion (the “ Chapman Opinion ”) with respect to the qualification of Redwood Trust as a “real estate investment trust” under the provisions of the Internal Revenue Code of 1986, as amended (the “Code” ), ¹   and on certain other federal income tax matters. To the extent that any of the following representations relate to future events, such representations constitute results that the Company anticipates achieving based on the business plans and operational methods that the Company has followed and intends to follow. Capitalized terms used but not defined herein shall have the meaning assigned to them in the Chapman Opinion.

 

REIT Related Matters:

 

1. I am familiar with the Company’s corporate and financial affairs, its methods of operation, and its books and records and tax filings. I am also familiar with the income, asset and stock ownership requirements applicable to real estate investment trusts under Section 856 of the Code and the distribution requirements applicable to real estate investment trusts under Section 857 of the Code, that, in each case, must be satisfied in order for the REIT ²   to maintain its classification as a real estate investment trust.

 

2. The Company and each of its subsidiaries has at all times been and will continue to be operated in accordance with (i) its respective organizational documents and (ii) the laws of the jurisdiction under which it is organized.

 

3. The Company adopted and has maintained December 31 as its year-end for all fiscal and tax purposes.

 

4. The REIT made a timely election to be subject to tax as a real estate investment trust under the Code commencing with its taxable year ended December 31, 1994 and has not revoked, or received any notice of termination, of such election.

 

5. Redwood Trust has no agreements regarding its stock other than: (i) the 2002 Redwood Trust Incentive Plan (as amended through May 2006, the “Stock Option Plan” ), (ii) the Dividend Reinvestment and Stock Purchase Plan (as amended through May 5, 2004, the “DRP” ), and (iii) the 2002 Employee Stock Purchase Plan (the “ESPP” and, together with the Stock Option Plan and the DRP, the “Stock Plans” ), and there have been no changes to the Stock Plans or Redwood Trust’s (i) Articles of Amendment and Restatement (the “Charter” ), (ii) Articles Supplementary, (iii) Bylaws (as modified through November 2005), or (iv) Executive Deferred Compensation Plan (as modified through November 2006), since their respective dates of adoption or the last amendment noted herein. The copies of the corporate and shareholder minutes of Redwood Trust and its subsidiaries provided to you are true and complete copies of such minutes through date hereof and there have been no modifications or additions since such date.

_____________

 

6. At all times since December 31, 1994, (i) beneficial ownership of the stock of Redwood Trust has been held by 100 or more persons or entities, determined without reference to any rules of attribution or look-through, (ii) Redwood Trust has requested written statements of actual stock ownership from all shareholders of record holding 5 percent or more of Redwood Trust’s stock and has maintained its records as required under section 1.857-8 of the Treasury regulations, and (iii) based on all information available to Redwood Trust in its stock register, stock ownership records obtained from the Depository Trust Corporation, 13D filings, written statements from Redwood Trust’s shareholders of record, and other information available to it, no more than 50 percent in value of the capital stock of Redwood Trust is owned, directly or indirectly, by five or fewer individuals determined using the applicable rules of attribution as required under the Code.

 

7. The beneficial ownership of Redwood Trust has been, and will continue to be, evidenced by transferable shares. Redwood Trust has not, and will not, impose, and it is not aware of, any transfer restrictions on its common stock, other than restrictions (i) contained in Redwood Trust’s Charter, (ii) imposed by applicable federal and state securities laws, and (iii) imposed under the Stock Plans. The restrictions contained in the Charter were adopted to enable Redwood Trust to comply with certain requirements set forth in sections 856(a)(5), (a)(6), and (h) of the Code which are necessary for its qualification as a real estate investment trust.

 

8. The REIT does not own more than 10 percent of the equity of, or control, directly or indirectly, any corporation, association or other entity other than those listed on Exhibit A .

 

9. For all tax years commencing prior to 1998, less than 30 percent of the gross income of the REIT (as computed for tax purposes) in any taxable year was derived from the sale or other disposition of (i) stock or securities held for less than one year, (ii) property (other than Foreclosure Property (as defined herein)) that was (a) held by the REIT primarily for sale to customers in the ordinary course of the REIT’s trade or business or (b) properly included in inventory of the REIT, and (iii) real property (including interests in mortgages on real property) held for less than four years, other than property compulsorily or involuntarily converted as a result of its destruction in whole or in part, seizure, or requisition or condemnation or threat or imminence thereof and property that was Foreclosure Property.

 

10. At least 75 percent of the gross income derived by the REIT (as computed for tax purposes) in any taxable year has consisted, and will consist, of (i) interest on obligations secured by mortgages on real property or on interests in real property, (ii) amounts derived from the rental of real property, (iii) gain realized upon the sale or other disposition of real property (including interests in mortgages on real property) that is not property held by the REIT primarily for sale to customers in the ordinary course of a business of being a dealer in, or making a market in, such property and that is not included in inventory of the REIT, (iv) dividends or other distributions on, and gain from the sale or other distribution of, shares (or certificates of beneficial interests) in other real estate investment trusts, (v) abatements and refunds of taxes on real property, (vi) income and gain derived from real property (including interests in real property) and any personal property incident to such real property, acquired by the REIT through a default by the obligor on the lease of such property or on the indebtedness secured by such property ( “Foreclosure Property” ), (vii) amounts (other than amounts the determination of which depends in whole or in part on the income or profits of any person) received or accrued as consideration for entering into agreements to make loans secured by mortgages on real property or on interests in real property, or to purchase or lease real property, (viii) gain from the sale or disposition of real property (or interests in real property and interests in mortgages on real property) and shares in other real estate investment trusts, which were treated as held for sale or as inventory but that were not subjected to a prohibited transaction tax, and (ix) qualified temporary investment income.

 

11. At least 95 percent of the gross income derived by the REIT (as computed for tax purposes) in any taxable year has consisted, and will consist, of (i) the items of income described in Paragraph 10 above, (ii) with respect to tax years ending before 2005, payments to the REIT under any interest rate swaps or cap agreements entered into by the REIT to hedge any variable rate indebtedness incurred or to be incurred by the REIT to acquire or carry real estate assets ( “Qualifying Interest Rate Agreements” ) and any gain from the termination or disposition of such agreements, (iii) gain from the sale or other disposition of stock or securities that are not held for sale to customers or treated as inventory, and (iv) interest and dividends, including interest and dividends from subsidiaries.

 

12. At the end of each calendar quarter, at least 75 percent of the value of the total assets of the REIT (as determined under GAAP) has consisted of real property (including interests in real property and interests in mortgages on real property) and shares (or certificates of beneficial interest) in other real estate investment trusts, cash and cash items (including receivables that arise in the ordinary course of operations but excluding receivables purchased from another person), and United States government securities.

 

13. At the end of each calendar quarter ending on or before December 31, 2000, (a) not more than 25 percent of the value of the total assets of the REIT (as determined under GAAP) consisted of securities (other than those securities taken into account for purposes of Paragraph 12 above) and (b) the REIT did not beneficially own any such securities of any one issuer (i) having an aggregate value in excess of 5 percent of the value of the total assets of the REIT or (ii) representing in excess of 10 percent of the outstanding voting power of securities of such issuer.

 

14. At the end of each calendar quarter beginning on or after January 1, 2001, (a) not more than 25 percent of the value of the total assets of the REIT (as determined under GAAP) was attributable to securities (other than those securities taken into account for purposes of Paragraph 12 above), (b) not more than 20 percent of the value of the REIT’s total assets has or will be attributable to one or more taxable REIT subsidiaries and (c) other than securities of a taxable REIT subsidiary or securities taken into account for purposes of Paragraph 12 above, the REIT has not beneficially owned any securities of any one issuer (i) having an aggregate value in excess of 5 percent of the value of the total assets of the REIT or (ii) representing in excess of 10 percent of the outstanding voting power or value of securities of such issuer. In particular, it is my understanding that the securities held by the REIT in each of MKB CBO II, Ltd., Crest 2000-1, Ltd., Trainer Wortham Republic CBO II, Limited and GSAMP 2006-RESID1 ³   represent less than 10 percent of the total vote and value of such issuers’ securities.

________________

 

15. The REIT has closely monitored, and will continue to closely monitor, its income, including income from intercompany transactions, hedging transactions and sales of mortgage related assets and securities, and the purchase, holding, and disposition of its assets in order to comply with the representations set forth in Paragraphs 9, 10, 11, 12, 13 and 14 hereof. Specifically, the REIT will continue to monitor its earnings from interest rate caps and other hedging instruments for purposes of determining whether such income constitutes income from Qualifying Interest Rate Agreements and the proper characterization of such arrangements for purposes of the income and asset tests described above. If it is anticipated that the REIT may not be able to comply with such representations, the REIT will take appropriate measures, including the disposition of non-qualifying assets and/or assets generating non-qualifying income, to comply with such representations.

 

16. The REIT has not earned, and does not expect to earn, income from mortgage servicing rights with respect to mortgage loans beneficially owned by others.

 

17. The REIT has held 100 percent of the capital stock of Sequoia and Cypress, respectively, at all times since their respective dates of formation and will hold 100 percent of the capital stock of any other entity intended to be treated as a “qualified REIT subsidiary” at all times during the period such entity is in existence. Neither Sequoia nor Cypress has issued or will issue any securities or incur any indebtedness without first seeking the advice of tax counsel.

 

18. Effective January 1, 2001, Redwood Trust and Holdings elected to treat Holdings as a taxable REIT subsidiary of the REIT. Holdings does not own stock of any entities other than (i) Sequoia Residential Funding, Inc. and Madrona LLC (collectively, the “Holdings Subsidiaries” ) and (ii) certain of the Acacia subsidiaries. The Holdings Subsidiaries are wholly-owned by Holdings.

 

19. The REIT has made a valid election to treat as a “taxable REIT subsidiary” (“TRS”) any corporation (other than a qualified REIT subsidiary or another REIT) in which it owns in excess of 10% of the securities (by vote or value) and shall not consent to the revocation of any such election. Part II of Exhibit A sets forth a complete list of all “taxable REIT subsidiaries” of the REIT (each, individually, a “TRS” ). Since January 1, 2001, the aggregate value of the securities of all TRS held by the REIT (including the value of any loans made by the REIT to any TRS) has not exceeded 20 percent of the REIT’s total assets (as determined under GAAP). The aggregate value of the securities of Holdings held by the REIT prior to January 1, 2001 did not exceed 5 percent of the REIT’s total assets (as determined under GAAP).

 

20. No TRS, directly or indirectly, operates or manages, or will operate or manage, a lodging or healthcare facility or provide to any person rights to any brand name under which a lodging facility or healthcare facility is operated. All transactions between the REIT and each TRS have been conducted on an arm’s length basis at terms believed to approximate market rate prices.

 

21. The REIT at all times has complied, and will continue to comply, with the record-keeping requirements prescribed by the provisions of the Code applicable to REITs and, specifically, sections 1.856-2(d)(3) and 1.857-8 of the Treasury regulations.

 

22. With respect to each tax year prior to 2001, the REIT distributed to its shareholders with respect to each such taxable year amounts equal in the aggregate to at least 95 percent of its “real estate investment trust taxable income” (determined without regard to the deduction for dividends paid and by excluding any net capital gain) plus at least 95 percent of the excess of any “net income from foreclosure property” over the tax imposed by the Code on such net income, if any, as such terms are defined in sections 857(b)(2) and 857(b)(4)(B), respectively, of the Code, during the relevant taxable year or during the spill over period immediately thereafter as described in section 858 of the Code. With respect to each tax year beginning after December 31, 2000, the REIT has timely distributed to its shareholders amounts in the aggregate equal to at least 90 percent of its real estate investment trust taxable income.

 

23. For each tax year, the REIT has either (i) distributed (taking into consideration distributions permitted under section 857(b)(9) of the Code) (a) 85 percent of its ordinary income for the calendar year, (b) 95 percent of its capital gain net income for that calendar year and (c) all amounts from earlier years that are not treated as having been distributed under section 4981 of the Code, or (ii) paid all applicable excise taxes for such calendar year.

 

24. Redwood Trust will neither modify its existing dividend reinvestment plan to allow, nor adopt a dividend reinvestment plan that permits, its shareholders to reinvest their cash distributions in shares of Redwood Trust at a purchase price less than 95 percent of the fair market value of such shares on the distribution date. Such discount shall be computed to include all brokerage charges until advised otherwise by counsel. In addition, Redwood Trust generally only grants “waiver discounts” at the same price as is generally available to other participants in the plan unless there is a demonstrated cost savings to Redwood Trust that justifies a different discount rate.

 

25. The REIT has at all times beneficially held, and will continue to beneficially hold, its assets, including its mortgage related assets and securities for investment purposes and not as property held primarily for sale to customers in the ordinary course of a trade or business of the REIT. At no time has the REIT held itself out to third parties as willing to make a market or act as a dealer in mortgage related assets or securities. The REIT has not originated any mortgage loans and has acquired all of its mortgage related assets from third parties after origination and funding thereof.

 

26. The REIT does not hold any mortgages with respect to which the interest is dependent upon appreciation or the income or profits of any person.

 

27. Redwood Trust intends that the representations made by it herein regarding its mortgage related assets and securities will be true with respect to any mortgage related assets and securities acquired by the REIT after the date hereof.

 

28. The information set forth in the quarterly management reports provided to you regarding computation of the REIT’s asset and income tests and compliance with its distribution requirements are true and correct as of the date thereof.

 

29. The Company has timely filed all tax returns required to be filed by it or its affiliates. To my knowledge, neither the REIT, nor any of its affiliates, is the subject of any pending or threatened audit or investigation by the Internal Revenue Service or other taxing authority.

 

Other Matters:

 

1. I have reviewed and am familiar with the contents of the Chapman Opinion, the Subordinated Indenture and the other Transaction Documents. I am aware of no inaccuracy in the assumptions made in the Chapman Opinion (as set forth in the section labeled “Assumptions”).

 

2. I am familiar with the Company’s current financial condition and capital structure and its business plan, including projected assets, income, expense and capital structure for the foreseeable future.

 

3. Taking into account the issuance of the Subordinated Notes, the Company currently has a net worth of approximately $900 million and a ratio of total debt to net worth of approximately 13.01:1.

 

4. Although the Transaction Documents do not impose a limit on the Company’s ability to incur debt that is senior to the Subordinated Note or to incur additional leverage generally, the Company’s business plan does not contemplate issuing debt or incurring liabilities that would or could impair the Company’s ability to pay accrued interest on the Subordinated Notes quarterly or repay principal by maturity.

 

5. The Company intends to treat the Subordinated Notes as debt for all tax, accounting and other purposes.

 

IN WITNESS WHEREOF, we have, on behalf of Redwood Trust, Inc., signed this Officer’s Certificate effective as of the ____ day of May, 2007.

 

Redwood Trust, Inc.

_________________________________

Martin S. Hughes

_________________________________
Harold F. Zagunis

Vice President

 

 

Exhibit A

( as of March 31, 2007)

Part I

Sequoia Mortgage Funding Corporation (“ Sequoia ”)

Cypress Trust, Inc. (“ Cypress ”)

Sequoia Mortgage Trust 4

Sequoia Mortgage Trust 5

Sequoia Mortgage Trust 6

Sequoia Mortgage Funding Trust 2003-A

Sequoia Mortgage Funding Trust 2004-A

Sequoia Heloc Trust 2004-1

Part II

RWT Holdings, Inc. (“ Holdings ”)

Sequoia Residential Funding, Inc.

Madrona LLC

Redwood Asset Management, Inc. (“ RAM ”)

Redwood Mortgage Funding, Inc. (“ RMF ”)

Cypress TRS, Inc.

Acacia CDO 4, Ltd.

Acacia CDO 5, Ltd.

Acacia CDO 6, Ltd.

Acacia CDO 7, Ltd.

Acacia CDO 8, Ltd.

Acacia CDO 9, Ltd.

Acacia CRE CDO 1, Ltd.

Acacia CDO 10, Ltd.

Acacia CDO 11, Ltd.

Acacia Option ARM 1 CDO, Ltd.

Acacia CRE CDO 2, Ltd.

Acacia CDO 4, Inc.

Acacia CDO 5, Inc.

Acacia CDO 6, Inc.

Acacia CDO 7, Inc.

Acacia CDO 8, Inc.

Acacia CDO 9, Inc.

Acacia CRE CDO 1, Inc.

Acacia CDO 10, Inc.

Acacia CDO 11, Inc.

Acacia Option ARM 1 CDO, Inc.

Acacia CRE CDO 2, Inc.

Crest G-Star 2001-2A, Ltd.

RESIX Finance Limited

Millstone III CDO, Ltd.

GSAA 2006-NIM8, Ltd.

 

ANNEX C

 

Pursuant to Section 3(d) of the Purchase Agreement, Richards, Layton & Finger, P.A., counsel for the Indenture Trustee, shall deliver an opinion to the effect that:

 

(i)   Wilmington Trust Company (“Wilmington Trust”) is duly incorporated and validly existing as a Delaware banking corporation in good standing under the laws of the State of Delaware with trust powers and its principal place of business in the State of Delaware.

 

(ii)   Wilmington Trust has the power and authority to execute, deliver and perform its obligations as Indenture Trustee under the Indenture and to authenticate and deliver the Securities pursuant to the terms of the Indenture.

 

(iii)   The Indenture has been duly authorized, executed and delivered by Wilmington Trust and t o the extent that the Indenture is a legal, valid and binding obligation of Wilmington Trust under the laws by which such agreement is expressly governed, the Indenture constitutes the legal, valid and binding obligation of Wilmington Trust, enforceable against Wilmington Trust, in accordance with the terms thereof subject to (i) applicable bankruptcy, insolvency, moratorium, reorganization, receivership, liquidation, fraudulent conveyance or transfer and similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law) and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution..

 

(iv)   Neither the execution, delivery and performance by Wilmington Trust of the Indenture, nor the consummation of any of the transactions by Wilmington Trust contemplated thereby, including the authentication and delivery of the Securities by the Indenture Trustee pursuant to the terms of the Indenture, (A) requires the consent or approval of, the giving of notice to, the registration or filing with, any governmental authority or agency under the laws of the State of Delaware or the federal laws of the United States of America governing the banking or trust powers of Wilmington Trust, or (B) is in violation of the charter or bylaws of Wilmington Trust or of the laws of the State of Delaware or of the federal laws of the United States of America governing the banking or trust powers of Wilmington Trust.

 

(v)   The Securities have been authenticated and delivered by Wilmington Trust.

 

In rendering such opinions, such counsel may (A) state that its opinion is limited to the laws of the State of Delaware and the laws of the United States of America, (B) rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of Wilmington Trust, the Company and public officials, and (C) make customary assumptions and exceptions as to enforceability and other matters.

 

SUBORDINATED INDENTURE

 

between

 

REDWOOD TRUST, INC.

 

and

 

WILMINGTON TRUST COMPANY ,

 

as Trustee

 

________________

 

Dated as of May 23, 2007

 

________________

 

TABLE OF CONTENTS

 

		Page
ARTICLE I Definitions and Other Provisions of General Application		1
SECTION 1.1.	Definitions.	1
SECTION 1.2.	Compliance Certificate and Opinions.	8
SECTION 1.3.	Forms of Documents Delivered to Trustee.	9
SECTION 1.4.	Acts of Holders.	9
SECTION 1.5.	Notices, Etc. to Trustee and Company.	11
SECTION 1.6.	Notice to Holders; Waiver.	12
SECTION 1.7.	Effect of Headings and Table of Contents.	12
SECTION 1.8.	Successors and Assigns.	12
SECTION 1.9.	Separability Clause.	12
SECTION 1.10.	Benefits of Indenture.	12
SECTION 1.11.	Governing Law.	13
SECTION 1.12.	Submission to Jurisdiction.	13
SECTION 1.13.	Non-Business Days.	13
ARTICLE II Security Forms		13
SECTION 2.1.	Form of Security.	13
SECTION 2.2.	Restricted Legend.	18
SECTION 2.3.	Form of Trustee’s Certificate of Authentication.	20
SECTION 2.4.	Temporary Securities.	20
SECTION 2.5.	Definitive Securities.	21
ARTICLE III The Securities		21
SECTION 3.1.	Payment of Principal and Interest.	21
SECTION 3.2.	Denominations.	23
SECTION 3.3.	Execution, Authentication, Delivery and Dating.	23
SECTION 3.4.	Global Securities.	24
SECTION 3.5.	Registration, Transfer and Exchange Generally.	26
SECTION 3.6.	Mutilated, Destroyed, Lost and Stolen Securities.	27
SECTION 3.7.	Persons Deemed Owners.	28
SECTION 3.8.	Cancellation.	28
SECTION 3.9.	Withholding Tax.	29
SECTION 3.10.	Reserved.	29
SECTION 3.11.	Agreed Tax Treatment.	29
SECTION 3.12.	CUSIP Numbers.	29
ARTICLE IV Satisfaction and Discharge		30
SECTION 4.1.	Satisfaction and Discharge of Indenture.	30
SECTION 4.2.	Application of Trust Money.	31

 

 

ARTICLE V Remedies		31
SECTION 5.1.	Events of Default.	31
SECTION 5.2.	Acceleration of Maturity; Rescission and Annulment.	32
SECTION 5.3.	Repurchase at the Option of Holders upon Change of Control.	33
SECTION 5.4.	Collection of Indebtedness and Suits for Enforcement by Trustee.	35
SECTION 5.5.	Trustee May File Proofs of Claim.	36
SECTION 5.6.	Trustee May Enforce Claim Without Possession of Securities.	36
SECTION 5.7.	Application of Money Collected.	37
SECTION 5.8.	Limitation on Suits.	37
SECTION 5.9.	Unconditional Right of Holders to Receive Principal, Premium, if any, and Interest.	38
SECTION 5.10.	Restoration of Rights and Remedies.	38
SECTION 5.11.	Rights and Remedies Cumulative.	38
SECTION 5.12.	Delay or Omission Not Waiver.	38
SECTION 5.13.	Control by Holders.	38
SECTION 5.14.	Waiver of Past Defaults.	39
SECTION 5.15.	Undertaking for Costs.	39
SECTION 5.16.	Waiver of Usury, Stay or Extension Laws.	40
ARTICLE VI The Trustee		40
SECTION 6.1.	Corporate Trustee Required.	40
SECTION 6.2.	Certain Duties and Responsibilities.	40
SECTION 6.3.	Notice of Defaults.	41
SECTION 6.4.	Certain Rights of Trustee.	42
SECTION 6.5.	May Hold Securities.	44
SECTION 6.6.	Compensation; Reimbursement; Indemnity.	44
SECTION 6.7.	Resignation and Removal; Appointment of Successor.	45
SECTION 6.8.	Acceptance of Appointment by Successor.	46
SECTION 6.9.	Merger, Conversion, Consolidation or Succession to Business.	46
SECTION 6.10.	Not Responsible for Recitals or Issuance of Securities.	46
SECTION 6.11.	Appointment of Authenticating Agent.	47
ARTICLE VII Holder’s Lists and Reports by Company		48
SECTION 7.1.	Company to Furnish Trustee Names and Addresses of Holders.	48
SECTION 7.2.	Preservation of Information, Communications to Holders.	48
SECTION 7.3.	Reports by Company.	49
ARTICLE VIII Consolidation, Merger, Conveyance, Transfer or Lease		50
SECTION 8.1.	Company May Consolidate, Etc., Only on Certain Terms.	50
SECTION 8.2.	Successor Company Substituted.	50
ARTICLE IX Supplemental Indentures		51
SECTION 9.1.	Supplemental Indentures without Consent of Holders.	51
SECTION 9.2.	Supplemental Indentures with Consent of Holders.	52
SECTION 9.3.	Execution of Supplemental Indentures.	52
SECTION 9.4.	Effect of Supplemental Indentures.	53
SECTION 9.5.	Reference in Securities to Supplemental Indentures.	53

 

 

ARTICLE X Covenants		53
SECTION 10.1.	Payment of Principal, Premium, if any, and Interest.	53
SECTION 10.2.	Money for Security Payments to be Held in Trust.	53
SECTION 10.3.	Statement as to Compliance.	54
SECTION 10.4.	Calculation Agent.	54
SECTION 10.5.	Reserved
SECTION 10.6.	Additional Covenants.	55
SECTION 10.7.	Waiver of Covenants.	56
SECTION 10.8.	Treatment of Securities.	56
SECTION 10.9.	Limitation of Issuance of Securities.	57
ARTICLE XI Redemption and Put of Securities		57
SECTION 11.1.	Optional Redemption.	57
SECTION 11.2.	Special Event Redemption.	57
SECTION 11.3.	Election to Redeem; Notice to Trustee.	58
SECTION 11.4.	Selection of Securities to be Redeemed.	58
SECTION 11.5.	Notice of Redemption.	58
SECTION 11.6.	Deposit of Redemption Price.	59
SECTION 11.7.	Payment of Securities Called for Redemption.	59
ARTICLE XII Subordination of Securities		60
SECTION 12.1.	Securities Subordinate to Senior Debt.	60
SECTION 12.2.	No Payment When Senior Debt in Default; Payment Over of Proceeds Upon Dissolution, Etc.	60
SECTION 12.3.	Payment Permitted If No Default.	62
SECTION 12.4.	Subrogation to Rights of Holders of Senior Debt.	62
SECTION 12.5.	Provisions Solely to Define Relative Rights.	62
SECTION 12.6.	Trustee to Effectuate Subordination.	63
SECTION 12.7.	No Waiver of Subordination Provisions.	63
SECTION 12.8.	Notice to Trustee.	63
SECTION 12.9.	Reliance on Judicial Order or Certificate of Liquidating Agent.	64
SECTION 12.10.	Trustee Not Fiduciary for Holders of Senior Debt.	64
SECTION 12.11.	Rights of Trustee as Holder of Senior Debt; Preservation of Trustee’s Rights.	64
SECTION 12.12.	Article Applicable to Paying Agents	65

SCHEDULES

 

Schedule A—Determination of LIBOR

 

Exhibit A—Form of Officer’s Financial Certificate

 

Subordinated Indenture , dated as of May 23, 2007, between Redwood Trust, Inc., a Maryland corporation (the “ Company” ), and Wilmington Trust Company ,   a Delaware banking corporation, as Trustee (in such capacity, the “ Trustee” ).

 

Recitals of the Company

 

Whereas , the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its unsecured subordinated notes (the “ Securities” ) issued to evidence loans made to the Company by the Purchaser (as defined in the Purchase Agreement, dated as of even date herewith) and to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered; and

 

Whereas , all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done.

 

Now, Therefore , this Indenture Witnesseth:

 

For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:

 

ARTICLE I   

 

Definitions and Other Provisions of General Application

 

SECTION 1.1.    Definitions.

 

For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

 

(a)    the terms defined in this Article I have the meanings assigned to them in this Article I ;

 

(b)    the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”;

 

(c)    all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP;

 

(d)    unless the context otherwise requires, any reference to an “Article” or a “Section” refers to an Article or a Section, as the case may be, of this Indenture;

 

(e)    the words “hereby”, “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision;

 

(f)    a reference to the singular includes the plural and vice versa; and

 

(g)    the masculine, feminine or neuter genders used herein shall include the masculine, feminine and neuter genders.

 

“Act” when used with respect to any Holder, has the meaning specified in Section 1.4 .

 

“Additional Interest” means the interest, if any, that shall accrue on any amounts payable on the Securities, the payment of which has not been made on the applicable Interest Payment Date and which shall accrue at the rate per annum specified or determined as specified in such Security, in each case to the extent legally enforceable.

 

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

“Applicable Depositary Procedures” means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Security, in each case to the extent applicable to such transaction and as in effect from time to time.

 

“Authenticating Agent” means any Person authorized by the Trustee pursuant to Section 6.11 to act on behalf of the Trustee to authenticate the Securities.

 

“Board of Directors” means the board of directors of the Company or any duly authorized committee of that board.

 

“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification.

 

“Business Day” means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in the City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee is closed for business.

 

“ Calculation Agent ” has the meaning specified in Section 10.4 .

 

“ Code ” means the Internal Revenue Code of 1986, as amended.

 

“Commission” has the meaning specified in Section 7.3(c) .

 

“Company” means the Person named as the “Company ” in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company ” shall mean such successor Person.

 

“Company Request” and “ Company Order” mean, respectively, the written request or order signed in the name of the Company by its Chairman of the Board of Directors, its Vice Chairman of the Board of Directors, its Chief Executive Officer, President or a Vice President, and by its Chief Financial Officer, its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. Notwithstanding the foregoing, a Company Order for the purposes of authentication and delivery of the Securities pursuant to Section 3.3(a) shall require the signature of only one of the above referenced officers of the Company.

 

“Corporate Trust Office” means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of this Indenture is located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attn: Corporate Trust Administration - Redwood Trust, Inc.

 

“Debt” means, with respect to any Person, whether recourse is to all or a portion of the assets of such Person, whether currently existing or hereafter incurred and whether or not contingent and without duplication, (i) every obligation of such Person for money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or other accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; (vi) all indebtedness of such Person, whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise; and (viii) any renewals, extensions, refundings, amendments or modifications of any obligation of the type referred to in clauses (i) through (vii).

 

“Defaulted Interest” has the meaning specified in Section 3.1(c) .

 

“Depositary” means an organization registered as a clearing agency under the Exchange Act that is designated as Depositary by the Company or any successor thereto. DTC will be the initial Depositary.

 

“Depositary Participant” means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Depositary effects book-entry transfers and pledges of securities deposited with the Depositary.

 

“Dollar” or   “$” means the currency of the United States of America that, as at the time of payment, is legal tender for the payment of public and private debts.

 

“DTC” means The Depository Trust Company, a New York corporation, or any successor thereto.

 

“EDGAR” has the meaning specified in Section 7.3(c) .

 

“Equity Interests ” means (a) the partnership interests (general or limited) in a partnership, (b) the membership interests in a limited liability company and (c) the shares or stock interests (both common stock and preferred stock) in a corporation.

 

“Event of Default” has the meaning specified in Section 5.1 .

 

“Exchange Act” means the Securities Exchange Act of 1934 or any statute successor thereto, in each case as amended from time to time.

 

“Expiration Date” has the meaning specified in Section 1.4(h) .

 

“ GAAP ” means United States generally accepted accounting principles, consistently applied, from time to time in effect.

 

“Global Security” means a Security that evidences all or part of the Securities, the ownership and transfers of which shall be made through book entries by a Depositary.

 

“Government Obligation” means (a) any security that is (i) a direct obligation of the United States of America of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (b) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any Government Obligation that is specified in clause (a) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any Government Obligation that is so specified and held, provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt.

 

“Holder” means a Person in whose name a Security is registered in the Securities Register.

 

“Indenture” means this instrument as originally executed or as it may from time to time be amended or supplemented by one or more amendments or indentures supplemental hereto entered into pursuant to the applicable provisions hereof.

 

“Interest Payment Date” means January 30, April 30, July 30 and October 30 of each year, commencing on July 30, 2007, during the term of this Indenture.

 

“Investment Company Act” means the Investment Company Act of 1940 or any successor statute thereto, in each case as amended from time to time.

 

“ Investment Company Event” means the receipt by the Company of an Opinion of Counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation (including any announced prospective change) or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that the Company is or, within ninety (90) days of the date of such opinion will be, considered an “investment company” that is required to be registered under the Investment Company Act, which change or prospective change becomes effective or would become effective, as the case may be, on or after the date of the issuance of the Securities.

 

“LIBOR” has the meaning specified in Schedule A .

 

“LIBOR Business Day” has the meaning specified in Schedule A .

 

“LIBOR Determination Date” has the meaning specified in Schedule A .

 

“Maturity” means, when used with respect to any Security, the date on which the principal of such Security or any installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.

 

“Notice of Default” means a written notice of the kind specified in Section 5.1(c) .

 

“Officers’ Certificate” means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee.

 

“Opinion of Counsel” means a written opinion of counsel, who may be counsel for or an employee of the Company or any Affiliate of the Company.

 

“ Optional Redemption Price ” has the meaning set forth in Section 11.1 .

 

“Original Issue Date” means the date of original issuance of each Security.

 

“Outstanding” means, when used in reference to any Securities, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:

 

(i)    Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

 

(ii)    Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; provided, that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and

 

(iii)    Securities that have been paid or in substitution for or in lieu of which other Securities have been authenticated and delivered pursuant to the provisions of this Indenture, unless proof satisfactory to the Trustee is presented that any such Securities are held by Holders in whose hands such Securities are valid, binding and legal obligations of the Company;

 

provided, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding unless the Company shall hold all Outstanding Securities, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities that a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor.

 

“Paying Agent ”   means the Trustee or any Person (other than the Company or any Affiliate of the Company) authorized by the Company to pay the principal of or any premium or interest on, or other amounts in respect of, any Securities on behalf of the Company.

 

“Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, company, limited liability company, trust, unincorporated association, or government, or any agency or political subdivision thereof, or any other entity of whatever nature.

 

“Place of Payment” means, with respect to the Securities, the Corporate Trust Office of the Trustee.

 

“Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security. For the purposes of this definition, any security authenticated and delivered under Section 3.6 in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.

 

“Proceeding” has the meaning specified in Section 12.2(b) .

 

“Purchase Agreement” means the Purchase Agreement executed and delivered contemporaneously with this Indenture by the Company and the purchaser named therein, as the same may be amended from time to time.

 

“Redemption Date” means, when used with respect to any Security to be redeemed, the date fixed for such redemption by or pursuant to this Indenture.

 

“Redemption Price” means, when used with respect to any Security to be redeemed, in whole or in part, the Special Redemption Price or the Optional Redemption Price, as applicable, at which such Security or portion thereof is to be redeemed as fixed by or pursuant to this Indenture.

 

“ Reference Banks ” has the meaning specified in Schedule A .

 

“Regular Record Date” for the interest payable on any Interest Payment Date with respect to the Securities means the date that is fifteen (15) days preceding such Interest Payment Date (whether or not a Business Day).

 

“Responsible Officer” means, when used with respect to the Trustee, the officer in the Corporate Trust Administration department of the Trustee having direct responsibility for the administration of this Indenture.

 

“Rights Plan” means a plan of the Company providing for the issuance by the Company to all holders of its Equity Interests of rights entitling the holders thereof to subscribe for or purchase Equity Interests or any class or series of Equity Interests in the Company which rights (i) are deemed to be transferred with such Equity Interests and (ii) are also issued in respect of future issuances of such Equity Interests, in each case until the occurrence of a specified event or events.

 

“Securities” or “ Security ” means any debt securities or debt security, as the case may be, authenticated and delivered under this Indenture.

 

“Securities Act” means the Securities Act of 1933 or any successor statute thereto, in each case as amended from time to time.

 

“Securities Register” and “ Securities Registrar” have the respective meanings specified in Section 3.5 .

 

“Senior Debt” means the principal of and any premium and interest on (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company, whether or not such claim for post-petition interest is allowed in such proceeding) all Debt of the Company, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless it is provided in the instrument creating or evidencing the same or pursuant to which the same is outstanding, that such obligations are not superior in right of payment to the Securities issued under this Indenture;   provided , that Senior Debt shall not be deemed to include any (i) debt or (ii) other debt securities (and guarantees, if any, in respect of such debt securities) issued to any trust (or a trustee of any such trust), partnership or other entity affiliated with the Company that is a financing vehicle of the Company (a “financing entity”) in connection with the issuance by such financing entity of equity securities or other securities, in each case of (i) or (ii) pursuant to an instrument that ranks pari passu with or junior in right of payment to this Indenture, including, but not limited to the trust preferred securities issued by Redwood Capital Trust I; provided, that the Securities shall be senior in right of payment to any junior subordinated debt securities issued by the Company, including, but not limited to, the debt securities issued by Redwood Capital Trust I and by any other financing entity (as defined herein).

 

“Special Event” means the occurrence of an Investment Company Event.

 

“Special Record Date” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.1(c)(i) .

 

“ Special Redemption Price ” has the meaning set forth in Section 11.2 .

 

“Stated Maturity” means July 30, 2037.

 

“Subsidiary” of a Person means (a) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person and/or by one or more of its Subsidiaries or (b) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person and/or by one or more of its Subsidiaries. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of the Company.

 

“ Substantially Similar Securities ” has the meaning set forth in Section 10.9 .

 

“Trustee” means the Person named as the “Trustee ” in the first paragraph of this instrument, solely in its capacity as such and not in its individual capacity, until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and, thereafter, “Trustee ” shall mean or include each Person who is then a Trustee hereunder.

 

“ Trust Indenture Act ”   means the Trust Indenture Act of 1939, as amended and as in effect on the date as of this Indenture.

 

SECTION 1.2.    Compliance Certificate and Opinions.

 

(a)    Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall, if requested by the Trustee, furnish to the Trustee an Officers’ Certificate stating that all conditions precedent (including covenants compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent (including covenants compliance with which constitutes a condition precedent), if any, have been complied with.

 

(b)    Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificate provided pursuant to Section 10.3 ) shall include:

 

(i)    a statement by each individual signing such certificate or opinion that such individual has read such covenant or condition and the definitions herein relating thereto;

 

(ii)    a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions of such individual contained in such certificate or opinion are based;

 

(iii)    a statement that, in the opinion of such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and

 

(iv)    a statement as to whether, in the opinion of such individual, such condition or covenant has been complied with.

 

SECTION 1.3.    Forms of Documents Delivered to Trustee.

 

(a)    In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

 

(b)    Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or after reasonable inquiry should know, that the certificate or opinion or representations with respect to matters upon which his or her certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or after reasonable inquiry should know, that the certificate or opinion or representations with respect to such matters are erroneous.

 

(c)    Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

 

(d)    Whenever, subsequent to the receipt by the Trustee of any Board Resolution, Officers’ Certificate, Opinion of Counsel or other document or instrument, a clerical, typographical or other inadvertent or unintentional error or omission shall be discovered therein, a new document or instrument may be substituted therefor in corrected form with the same force and effect as if originally received in the corrected form and, irrespective of the date or dates of the actual execution and/or delivery thereof, such substitute document or instrument shall be deemed to have been executed and/or delivered as of the date or dates required with respect to the document or instrument for which it is substituted. Without limiting the generality of the foregoing, any Securities issued under the authority of such defective document or instrument shall nevertheless be the valid obligations of the Company entitled to the benefits of this Indenture equally and ratably with all other Outstanding Securities.

 

SECTION 1.4.    Acts of Holders.

 

(a)    Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given to or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent thereof duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments (including any appointment of an agent) is or are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “ Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.4 .

 

(b)    The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him or her the execution thereof. Where such execution is by a Person acting in other than his or her individual capacity, such certificate or affidavit shall also constitute sufficient proof of his or her authority. The fact and date of the execution by any Person of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine.

 

(c)    The ownership of Securities shall be proved by the Securities Register.

 

(d)    Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.

 

(e)    Without limiting the foregoing, a Holder entitled to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount.

 

(f)    Except as set forth in paragraph (g) of this Section 1.4 , the Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided , that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date (as defined in Section 1.4(h) ) by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect). Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities in the manner set forth in Section 1.6 .

 

(g)    The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration or rescission or annulment thereof referred to in Section 5.2 , (iii) any request to institute proceedings referred to in Section 5.7(b ) or (iv) any direction referred to in Section 5.12 . If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided, that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect). Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company’s expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities in the manner set forth in Section 1.6 .

 

(h)    With respect to any record date set pursuant to paragraph (f) or (g) of this Section 1.4 , the party hereto that sets such record date may designate any day as the “Expiration Date ” and from time to time may change the Expiration Date to any earlier or later day; provided, that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities in the manner set forth in Section 1.6 , on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section 1.4 , the party hereto that set such record date shall be deemed to have initially designated the ninetieth (90 ^th ) day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the one hundred eightieth (180 ^th ) day after the applicable record date.

 

SECTION 1.5.    Notices, Etc. to Trustee and Company.

 

Any request, demand, authorization, direction, notice, consent, waiver, Act of Holders, or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with:

 

(a)    the Trustee by any Holder, any holder of Securities or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with and received by the Trustee at its Corporate Trust Office, or

 

(b)    the Company by the Trustee, any Holder or any holder of Securities shall be sufficient for every purpose hereunder if in writing and mailed, first class, postage prepaid, to the Company addressed to it at One Belvedere Place, Suite 300, Mill Valley, California 94941, Attn: Martin S. Hughes, or at any other address previously furnished in writing to the Trustee by the Company.

 

SECTION 1.6.    Notice to Holders; Waiver.

 

Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class, postage prepaid, to each Holder affected by such event to the address of such Holder as it appears in the Securities Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. If, by reason of the suspension of or irregularities in regular mail service or for any other reason, it shall be impossible or impracticable to mail notice of any event to Holders when said notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

 

SECTION 1.7.    Effect of Headings and Table of Contents.

 

The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction of this Indenture.

 

SECTION 1.8.    Successors and Assigns.

 

This Indenture shall be binding upon and shall inure to the benefit of any successor to the Company and the Trustee, including any successor by operation of law. Except in connection with a transaction involving the Company that is permitted under Article VIII and pursuant to which the assignee agrees in writing to perform the Company’s obligations hereunder, the Company shall not assign its obligations hereunder.

 

SECTION 1.9.    Separability Clause.

 

If any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and there shall be deemed substituted for the provision at issue a valid, legal and enforceable provision as similar as possible to the provision at issue.

 

SECTION 1.10.    Benefits of Indenture.

 

Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors and assigns, the holders of Senior Debt and the Holders of the Securities any benefit or any legal or equitable right, remedy or claim under this Indenture.

 

SECTION 1.11.    Governing Law.

 

This Indenture and the rights and obligations of each of the Holders, the Company and the Trustee shall be construed and enforced in accordance with and governed by the laws of the State of New York without reference to its conflict of laws provisions (other than section 5-1401 of the General Obligations Law).

 

SECTION 1.12.    Submission to Jurisdiction.