EX-10.2






COLLATERAL SECURITY, SETOFF AND NETTING AGREEMENT




THIS COLLATERAL SECURITY, SETOFF AND NETTING AGREEMENT, dated as of December 7, 2007, (as
amended, supplemented and otherwise modified from time to time, the “Agreement”) is made
collectively among:



ARCO CAPITAL CORPORATION LTD.. (“ACC”) and with respect to ACC, any Person who,
directly or indirectly, is in control of, or is controlled by, or is under common control with, ACC
(each such Person, a “ACC Affiliate”) (ACC and its parent, subsidiaries and ACC Affiliates,
individually a “ACC Entity” and collectively the “ACC Group”), on the one hand,



– and –




LUMINENT MORTGAGE CAPITAL, INC. (“Luminent”), and each of MERCURY MORTGAGE FINANCE
STATUTORY TRUST, LUMINENT CAPITAL MANAGEMENT, INC., PANTHEON HOLDING COMPANY, INC., PROSERPINE LLC,
MAIA MORTGAGE FINANCE STATUTORY TRUST, SATURN PORTFOLIO MANAGEMENT, INC., MINERVA MORTGAGE FINANCE
CORPORATION and MINERVA CDO DELAWARE SPV LLC (each such person and Luminent, individually a
“Luminent Entity” and collectively the “Luminent Group”), on the other hand.



R E C I T A L S:




WHEREAS, from time to time, ACC and/or the ACC Group have engaged and may continue to engage
in Transactions (as defined below) with Luminent Mortgage Capital, Inc. and/or the Luminent Group;



WHEREAS, to induce (i) GGRE LLC, an ACC Entity, to enter into and fund the Additional MRA
Transactions (defined below) and (ii) ACC as “Lender” under the Credit Agreement, and as “Secured
Party” under both the Guarantee and Security Agreement, to accommodate the Additional MRA
Transactions by waiver or amendment of certain provisions in the Credit Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
Luminent Entities have agreed to secure their present and future obligations to the ACC Entities by
pledging and granting a security interest in certain collateral to the ACC Entities hereunder.



A G R E E M E N T:




Section 1. Definitions.



As used herein, unless otherwise stated in this Agreement, all defined terms shall: (i) have
the same meaning ascribed to them in the relevant Transaction Documents as the context requires;
and (ii) be read either as singular or plural as appropriate, and where necessary the singular form
of any word used herein shall include the plural and vice versa.



“Additional MRA Transactions” means the funding by GGRE LLC of a series of new
confirmations and revised confirmations under the Repurchase Agreements resulting in additional
proceeds of at least $24 million to Luminent Entities.



“Agreement” has the meaning set forth in the preamble.



“Bankruptcy Code” means Title 11 of the United States Code, as amended from time to
time.



“Collateral” has the meaning set forth in Section 2.



“Credit Agreement” means that certain Amended and Restated Credit Agreement dated as
of September 26, 2007 (as the same may be further amended, supplemented or otherwise modified from
time to time, the “Credit Agreement”) among ACC as “Lender” and Luminent as “Borrower”.



“Guarantee Agreement” means that certain Amended and Restated Subsidiary Guarantee
Agreement dated as of September 26, 2007 (as the same may be further amended, supplemented or
otherwise modified from time to time, the “Credit Agreement”) among ACC as “Secured Party”
and the Luminent Entities named therein as “Guarantors”.



“Event of Default” has the meaning set forth in Section 4.



“Obligations” has the meaning set forth in Section 2.



“Person” shall mean an individual, corporation, trust, business trust, statutory
trust, partnership, limited liability company, joint venture or similar business association.



“Repurchase Agreements” means (i) those certain Master Repurchase Agreements dated as
of August 14, 2007 (as the same may be further amended, supplemented or otherwise modified from
time to time, the “Credit Agreement”) among Saturn Portfolio Management, Inc., Mercury
Mortgage Finance Statutory Trust, Inc., and Minerva Mortgage Finance Corporation each as a “seller”
and GGRE LLC as “buyer” and (ii) that certain Master Repurchase Agreement dated as of December 6,
2007 between Minerva CDO Delaware SPV LLC as “seller” and GGRE LLC as “buyer”.



“Securities” means, collectively, cash or cash equivalents, securities, commodities,
instruments, loans, receivables, currencies or contract rights or interests, options or rights in
or in respect of any thereof, including any collateral of every kind delivered with respect
thereto.



“Security Agreement” means that certain Amended and Restated Security and Pledge
Agreement dated as of September 26, 2007 among each of Luminent Mortgage Capital, Inc., Mercury
Mortgage Finance Statutory Trust, Luminent Capital Management, Inc., Pantheon Holding Company,
Inc., Proserpine LLC, Maia Mortgage Finance Statutory Trust, Saturn Portfolio Management, Inc.,
Minerva Mortgage Finance Corporation and Minerva CDO Delaware SPV LLC as “Grantors”, and Arco
Capital Corporation Ltd. as “Secured Party”.



“Settlement Amount” has the meaning set forth in Section 5.



“Termination Date” for this Agreement means the date on which all Obligations have
been satisfied in full.



“Transaction Documents” means this Agreement and all other agreements, documents,
forms, confirmations and other writings entered into or delivered pursuant to or in connection with
any Transactions, including, but not limited to those set forth on Exhibit A hereto.



“Transactions” means, without limitation, purchases or sales of Securities on a long,
short or forward basis, loan transactions, repurchase and reverse repurchase transactions,
arbitrage transactions, swaps, collars, caps, floors and purchases or sales of options to purchase
or sell Securities entered into in connection with any of the Transaction Documents.



Section 2. Collateral.



A. Luminent Mortgage Capital, Inc., and each other Luminent Entity hereby grants to each
member of the ACC Group a continuing security interest in and first lien on, and a right of setoff
with respect to, all of their respective securities, notes, mortgages, instruments, financial
assets, monies, trust receipts or other property whenever acquired and all distributions thereon
and proceeds thereof, whenever the same is held or carried for the Luminent Group by a member of
the ACC Group or any of such group’s agents or pledged, lent or sold in a Transaction by Luminent
Mortgage Capital, Inc. to any member of the ACC Group entered into heretofore or at any time in the
future (collectively the “Collateral”). The Collateral secures the prompt and full payment
and performance of any and all present and future obligations and liabilities of each member of the
Luminent Group to each member of the ACC Group, whether pledged pursuant to a Transaction Document
or otherwise (including without limitation obligations and liabilities under any Transactions),
whether matured, unmatured, liquidated, unliquidated, fixed or contingent (together with interest
at the rate provided under any agreement evidencing the same (or if not so provided, at the rate
described in Section 5(c)), and any allowed costs and fees, the “Obligations”).



B. All property of the Luminent Group held by the ACC Group shall be held in the nature of a
deposit for security. Except to the extent otherwise expressly provided in a Transaction Document,
Collateral held by or for the benefit of, or pledged to any member of the ACC Group, shall be
deemed held by or for the benefit of, or pledged to, such entity for its own account or as agent
and/or custodian for the account of another ACC Entity (or ACC Entities), as applicable.
Notwithstanding the foregoing, this provision shall not be construed in a manner which conflicts
with ACC’s requirement to obtain or maintain a certain level of margin with respect to any
Transaction.



C. All Collateral legally held by any ACC Entity (either directly or through an agent) shall
be held both for itself and for the benefit of all ACC Entities and the ACC Group.



Section 3. Periodic Netting and Setoff.



A. Each of the parties hereto acknowledges that (i) the parties have or may have entered into
the Transactions; and (ii) all Transactions have been and will be entered into, among other things,
in consideration of each other.



B. Effective as of the date of this Agreement, each ACC Entity shall have the right, from
time-to-time in its sole business discretion and without prior notice, to aggregate, setoff and net
any payment obligations arising under the Transactions. The parties specifically agree that
netting in respect of two or more Transactions may occur upon the election of any ACC Entity. This
periodic netting process shall be handled as set forth within this Section 3 for all Collateral
subject to Transactions. Accordingly,




	 	(1)	 	If any Luminent Entity owes (or has contingent obligations to)
any ACC Entity pursuant to any of the Transactions, any ACC Entity may, without
prior notice, aggregate, setoff and net: (a) any Collateral pledged by any
Luminent Entity to any ACC Entity; (b) any Collateral required to be paid or
returned by any ACC Entity to any Luminent Entity; and (c) any payment due any
Luminent Entity from any ACC Entity. Specifically, a member of the ACC Group
may net (a) amounts owed to any Luminent Entity by any ACC Entity under the
Transactions; and (b) amounts owed by any Luminent Entity to the other members
of the ACC Group under the Transactions to satisfy any Obligations of any
Luminent Entity to any ACC Entity.






	 	(2)	 	If amounts owed by all parties are equal, no party shall make a
payment under this Section 3.






	 	(3)	 	All payments due pursuant to this Section 3 shall be made on
the payment date, which shall be no later than the first business day after the
netting. All payments shall be made by wire transfer.






	 	(4)	 	Upon making such net payment and/or delivery, and provided that
the Collateral subject to such Transactions has been returned (if required)
properly to the appropriate party respectively and that all other obligations
of the parties hereto have been satisfied, each of the parties agrees to
reflect on its books and records that such netted Transactions have been
discharged fully.






	 	(5)	 	Any ACC Entity may, upon prior notice to the applicable
Luminent Entity, sell at private or public sale any Collateral and apply the
proceeds thereof against any Obligations, or retain and apply any Collateral in
satisfaction of any such Obligations to any ACC Entity;






	 	(6)	 	Any ACC Entity may setoff any obligations of any ACC Entity to
any Luminent Entity against any Obligations of any Luminent Entity to another
member of the ACC Group; and






	 	(7)	 	The ACC Group may collect from Luminent Group any losses, costs
or expenses incurred by any ACC Entity in taking any of the above-mentioned
actions (including commissions and reasonable legal fees and expenses), all of
which will be secured by the Collateral.





C. In the event that the Obligations to be netted are not fixed, the ACC Group may net and
setoff amounts pursuant to this Section 3 believed in good faith not to exceed 100% of the
Obligations due from the Luminent Entity and including contractual and/or statutory interest, costs
and anticipated attorney’s fees.



D. Any netting ACC Entity shall have the right to net and/or setoff Obligations and
Transactions in any order it chooses.



Section 4. Default Netting and Setoff.



A. An “Event of Default” shall have the respective meaning assigned to such terms in
the relevant Transaction Documents.



B. In addition to all other rights and remedies available under the relevant Transaction
Documents, an Event of Default shall give each ACC Entity the netting and setoff rights specified
in Section 3.



Section 5. Close-Out Netting and Setoff.



A. Upon termination of this Agreement, without limiting any other provision of this Agreement
or any Transaction Document, any member of the ACC Group may aggregate, setoff and net against any
Obligations of any Luminent Entity any Collateral, or the value thereof, pledged by or required to
be delivered or paid by any Luminent Entity to any member of the ACC Group in connection with such
terminated Transactions. In addition, upon termination under this Section, any member of the ACC
Group may aggregate, setoff and net against any Obligations of any Luminent Entity any Collateral,
or the value thereof, pledged by or required to be delivered or paid by any member of the ACC Group
to any Luminent Entity in connection with such terminated Transactions. Thereupon, the only
delivery obligation of any of the parties in connection with such Transactions will be for the
parties to deliver such Collateral or a net cash payment, as the case may be, as may be required
after giving effect to such aggregation, netting and setoff.



B. The method by which the parties hereto will value such Collateral for such netting and
setoff purposes will be determined by the method prescribed in the applicable agreement or, in the
absence of a prescribed method, by the ACC Entities in a commercially reasonable manner.



C. In the alternative, the ACC Group may net and setoff amounts pursuant to this Section in
accordance with the netting and setoff rights specified in Section 3.



D. Each ACC Entity shall aggregate any gains, losses and costs with respect to all
transactions into a single net amount (the “Settlement Amount”). It is expressly agreed
that the ACC Entities shall not be required to enter into replacement transactions in order to
determine the Settlement Amount. The ACC Group and the Luminent Group will provide one another
with a statement showing, in reasonable detail, their calculations of gains, losses and costs,
including all relevant quotations and specifying any amount payable, and giving details of the
relevant account to which any amount payable is to be paid.



Section 6. Remedies.



A. None of the rights and remedies of each member of the ACC Group shall be exclusive of any
other available right or remedy, and each remedy shall be cumulative and in addition to any other
right or remedy of each member of the ACC Group. Each member of the ACC Group shall be entitled to
exercise its rights and remedies against the Luminent Group in such order and to such extent as it,
in its sole discretion, deems appropriate. It is understood that a prior demand or call, or prior
notice of the time and place of such sale or purchase, shall not be considered a waiver of the
right of any member of the ACC Group to sell the Collateral without demand or notice. Luminent
Mortgage Capital, Inc., acknowledges that all of the Collateral (other than cash) is of a type that
may decline rapidly in value and/or is customarily sold on or in a recognized market (including the
whole loan market), and therefore, the Luminent Group is not entitled to prior notification of any
intended sale or other disposition thereof. The Luminent Group shall remain liable for any and all
Obligations it owes to any member of the ACC Group remaining unpaid or unsatisfied after the
application of the Collateral and the exercise of all rights hereunder.



B. All Obligations shall bear interest equal in value to the relevant rate specified in the
applicable Transaction Documents or, if no rate is specified, in respect of each day, the overnight
Federal Funds (Effective) Rate for such day that is quoted the next business day on Reuters Screen
FEDFUNDS1 under the heading under the caption “EFFECT” for such day, or, if that rate is
unavailable, the weighted average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such day as published by the
Federal Reserve Bank of New York on the next business day.



C. The rights and remedies granted hereby to the ACC Group are in addition to any rights and
remedies, and supercede any limitations on such rights and remedies that are inconsistent herewith,
that they may have under any existing or future agreements with any Luminent Entity unless, in the
case of any future agreements, any inconsistent provision therein is stated explicitly to supercede
this Agreement. Without limiting the generality of the foregoing, nothing herein shall be
construed as a requirement that a member of the ACC Group cause Collateral held on account of a
particular Transaction to be attributed (in whole or in part) to any other Transaction in
determining whether that member of the ACC Group is entitled to make a demand or call upon the
Luminent Entity for additional securities, monies or other property under any such other
Transaction.



Section 7. Multiple Party Setoff.



A. ACC, along with its Affiliates, and Luminent Mortgage Capital, Inc., along with its
Affiliates, agree to engage in a triangular or multi-party setoff pursuant to this Agreement if
necessary. Each member of the ACC Group and the Luminent Group agrees that, at the option of any
party to this Agreement, and without prior notice to any other party, any and all amounts payable
pursuant to Section 3, Section 4 or Section 5 to any party may be reduced or satisfied by a setoff
against any other amounts payable by or to any other party to this Agreement. For purposes of this
Agreement, the parties agree that (i) all of the ACC Entities constitute a single unit for purposes
of setoff and (ii) all of the ACC Entities constitute a single unit for purposes of setoff.



B. This right of setoff, recognized in New York law and the United States Bankruptcy Code,
shall be held by all parties to this Agreement. If any amounts are so set off, these amounts are
to be discharged promptly and in all respects.



Section 8. Recoupment.



The rights of the ACC Group contained herein are in addition to any and all recoupment rights
that the ACC Group may have at law or in equity against the Luminent Group.



Section 9. Choice of Law; Waiver of Jury Trial.



THIS AGREEMENT AND EACH AND EVERY OTHER TRANSACTION DOCUMENT AND TRANSACTION BETWEEN THE
PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF (OTHER THAN NEW YORK
GENERAL OBLIGATIONS LAW SECTION 5-1401), AND IN THE EVENT THAT ANY LAWSUIT IS COMMENCED RELATING TO
THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR TRANSACTION THE PARTIES AGREE TO SUBMIT TO THE
JURISDICTION OF THE FEDERAL AND STATE COURTS SITUATED IN THE COUNTY OF NEW YORK IN THE STATE OF NEW
YORK IN CONNECTION WITH ANY SUCH DISPUTE. THE PARTIES TO THIS AGREEMENT WAIVE THE RIGHT TO TRIAL
BY JURY IN ANY SUCH LAWSUIT.



Section 10. Assignment; Modification.



This Agreement may not be amended or modified except in a written instrument executed by each
of the parties hereto. The rights and obligations of the parties under this Agreement and under
any transaction or agreement (including any Transaction between the parties) may not be assigned
without the prior written consent of the other party and any purported assignment without such
consent shall be null and void. Subject to the foregoing, this Agreement shall be binding on the
parties and their successors and assigns. If any provisions of this Agreement shall not be
enforceable, the parties agree that the remaining provisions of this Agreement shall constitute the
binding Agreement between the parties.



Section 11. Representations, Warranties and Covenants.



Each party represents and warrants to the other party that it has all requisite power to
execute, deliver and perform its obligations under this Agreement; that this Agreement constitutes
a legal, valid and binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency and other laws affecting creditors’ rights generally and subject, as to
enforceability, to general principals of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law); that neither the execution and delivery of this Agreement by the
party, nor the performance of its obligations hereunder, (A) conflicts or will conflict with,
results or will result in a breach or violation of, or constitutes or will constitute a default
under: (i) its articles of incorporation or by-laws (or equivalent documents); (ii) the terms of
any agreement, obligation or instrument to which it is a party; or (iii) any statute, law, decree,
order, rule or regulation applicable to it, or (B) requires any authorization, approval, consent,
order, filing, or other action except such as has previously been obtained.



Section 12. Enforcement Costs and Expenses.



The Luminent Entities shall jointly and severally reimburse all ACC Entities for any damages,
claims, liabilities, expenses, attorney’s fees, etc., arising out of the enforcement of this
Agreement or any other Transaction Document; provided however in the event of a dispute arising out
of the enforcement of this Agreement, the losing party shall be responsible for all expenses and
attorney’s fees incurred in connection with such dispute.



Section 13. No Future Obligations.



Notwithstanding anything contained in this Agreement and except only as may be expressly set
forth in the Transaction Documents, neither party to this Agreement shall be obligated to enter
into any future Transactions. Each party agrees that it will deliver such documents and take such
action as are required to implement the terms of this Agreement.



Section 14. Counterparts.



This Agreement may be executed in Counterparts all of which taken together shall constitute
the Agreement.



[REMAINDER OF PAGE BLANK]




1




IN WITNESS WHEREOF, the undersigned have executed this Collateral Security, Setoff and
Netting Agreement as of the date first written above.



	 	 	 
	ARCO CAPITAL CORPORATION LTD
	for itself and as Agent for the ACC Group

	By:

	 	ARCO CAPITAL MANAGEMENT LLC, as

attorney-in-fact for Arco Capital Corporation
	By:

	 	/s/ Jay Johnston
	
 
	 	 







	 	 	Name: Jay Johnston

Title: Chief Executive Officer






GGRE LLC




By ARCO CAPITAL MANAGEMENT, its sole Manager




By: /s/ Jay Johnston

Name: Jay Johnston

Title: Chief Executive Officer




2




LUMINENT MORTGAGE CAPITAL, INC.




for itself and as Agent for the Luminent Group




By: /s/ Christopher J. Zyda

Name: Christopher J. Zyda

Title: Chief Financial Officer





MERCURY MORTGAGE FINANCE STATUTORY TRUST




By: /s/ Christopher J. Zyda

Name: Christopher J. Zyda

Title: Chief Financial Officer





LUMINENT CAPITAL MANAGEMENT, INC.




By: /s/ Christopher J. Zyda

Name: Christopher J. Zyda

Title: Chief Financial Officer





PANTHEON HOLDING COMPANY, INC.




By: /s/ Christopher J. Zyda

Name: Christopher J. Zyda

Title: Chief Financial Officer





PROSERPINE LLC




By: /s/ S. Trezevant Moore Jr.

Name: S. Trezevant Moore Jr.

Title: Chief Executive Officer





MAIA MORTGAGE FINANCE STATUTORY TRUST




By: /s/ Christopher J. Zyda

Name: Christopher J. Zyda

Title: Chief Financial Officer




3




SATURN PORTFOLIO MANAGEMENT, INC.




By: /s/ Christopher J. Zyda

Name: Christopher J. Zyda

Title: Chief Financial Officer





MINERVA MORTGAGE FINANCE CORPORATION




By: /s/ Christopher J. Zyda

Name: Christopher J. Zyda

Title: Chief Financial Officer





MINERVA CDO DELAWARE SPV LLC




By: /s/ Christopher J. Zyda

Name: Christopher J. Zyda

Title: Chief Financial Officer




4




EXHIBIT A




As of the date hereof, the Parties have entered into the following agreements:




	1.	 	Master Repurchase Agreement dated August 14, 2007 among Saturn Portfolio Management, Inc. as
“seller” and GGRE LLC as “buyer”.






	2.	 	Master Repurchase Agreement dated August 14, 2007 among Mercury Mortgage Finance Statutory
Trust, Inc. as “seller” and GGRE LLC as “buyer”.






	3.	 	Master Repurchase Agreement dated August 14, 2007 among Minerva Mortgage Finance Corporation
as “seller” and GGRE LLC as “buyer”.






	4.	 	Amended and Restated Credit Agreement dated as of September 26, 2007 between Arco Capital
Corporation Ltd. and Luminent Mortgage Capital, Inc.






	5.	 	Amended and Restated Subsidiary Guarantee Agreement dated as of September 26, 2007 among each
of Mercury Mortgage Finance Statutory Trust, Luminent Capital Management, Inc., Pantheon
Holding Company, Inc., Proserpine LLC, Maia Mortgage Finance Statutory Trust, Saturn Portfolio
Management, Inc., Minerva Mortgage Finance Corporation and Minerva CDO Delaware SPV LLC as
“Guarantors”, and Arco Capital Corporation Ltd.






	6.	 	Amended and Restated Security and Pledge Agreement dated as of September 26, 2007 among each
of Luminent Mortgage Capital, Inc., Mercury Mortgage Finance Statutory Trust, Luminent Capital
Management, Inc., Pantheon Holding Company, Inc., Proserpine LLC, Maia Mortgage Finance
Statutory Trust, Saturn Portfolio Management, Inc., Minerva Mortgage Finance Corporation and
Minerva CDO Delaware SPV LLC as “Grantors”, and Arco Capital Corporation Ltd. as “Secured
Party”.






	7.	 	Master Repurchase Agreement dated December 6, 2007, among Minerva CDO Delaware SPV LLC as
“seller” and GGRE LLC as “buyer”.






	8.	 	First Amendment dated December 7, 2007, to Amended and Restated Credit Agreement dated as of
September 26, 2007 among Arco Capital Corporation Ltd., Luminent Mortgage Capital, Inc. and
each of Mercury Mortgage Finance Statutory Trust, Luminent Capital Management, Inc., Pantheon
Holding Company, Inc., Proserpine LLC, Maia Mortgage Finance Statutory Trust, Saturn Portfolio
Management, Inc., Minerva Mortgage Finance Corporation and Minerva CDO Delaware SPV LLC as
“Guarantors”.






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